Amazon At The Forefront of Retail Shopping

Amazon was the best performer in the retail space last quarter, so there is no surprise it's the focus as American consumers kick off the shopping season.

Starting in the Black

Thanksgiving usually marks the start of general bullishness in the markets, as traders see more positivity through the end of the year. Black Friday tends to be particularly positive, with stock markets ending the day in the green almost 8 out of 10 times. Retail is naturally a focus, as the day represents a significant sales opportunity and gets its name from retailers seeing operating profits in the black (or positive). But, given the trends so far this year, there could be a disruption in the general dynamic, as online sales are forecast to be the largest winner in an environment where Americans, and increasingly overseas, are hunting for bargains.

Retail is expecting a somewhat downbeat result for Black Friday this year, down to 3-4% over last year's 5.4%. But in the online segment, the outlook is much more auspicious, with projected growth of 5.7% for Black Friday and Cyber Monday. When factoring in inflation of 3.2% over the year, sales projections for brick-and-mortar stores are downright dismal.

Setting the Stage for the Season

Investors will likely be looking at the results of Black Friday shopping, usually published over the weekend, for clues about how strong the consumer is and how sales might perform for the rest of the year. Research has shown that consumers increasingly prefer Cyber Monday shopping over Black Friday due to convenience. If this trend holds true through this season, it could mean that Amazon will likely be the outsized winner for the quarter again.

Amazon's latest forecasts expect sales for the holiday quarter to be between $160-167B, a 7-12% annual increase. The National Retail Federation forecasts that online sales will grow 7-9% year-over-year, significantly higher than the entire retail industry, which is expected to mirror Black Friday at 3-4% annual growth. US consumers have been characterised as "resilient", given the state of the economy, particularly with inflation still pressuring pocketbooks. Still, according to MasterCard, electronics are expected to be the top pick for shopping this year, with growth in the 6% range, and iPhones are at the top of that list. However, Deloitte research points to shoppers being more interested in finding deals, which leaves Amazon in a pole position this year, combined with a preference for online shopping.

Interestingly, Amazon's stock has formed a cap-and-handle pattern, pending upward accumulation to the measured-move target at $210 (145+(145-80)). If the regional support at 120 succumbs to potential pressure, we might get an inverse head-and-shoulders instead, opposing $100. On the way up, $160 and $188 may act as interim resistances.

Source: SpreadEx / AMZN

Key Takeaways

Amazon is expected to be the top performer in retail this holiday season, with online sales projected to grow significantly while brick-and-mortar stores struggle. Despite a downbeat outlook for overall retail sales, Amazon's forecasts indicate a 7-12% increase, and the National Retail Federation predicts online sales to grow 7-9% year-over-year. Consumer preferences for convenience and finding deals drive the shift towards online shopping, making Amazon the likely winner for the quarter. Electronics, mainly iPhones, are expected to be the top pick for shoppers.