Navigating the Retailing Crosscurrents

Retail is a sector I find interesting right now. The space seems to be in flux as it tries to navigate numerous crosscurrents. Consumer confidence is at a five-year high which should be great for retail stocks. However, as neither political party is really championing an extension right now, it appears that the payroll tax holiday will expire at the end of the year. This would take $120 billion annually out of consumers' pockets, and probably provide a substantial headwind -- especially at the low end of the market -- unless Congress kicks the entire can down the road for a few months while they negotiate a longer-term deal. Job growth is anemic for this point in a recovery, but we are still adding over 100,000 new jobs a month.

So judging where consumer demand is going is very challenging at the moment. My take is that the low end of the market is something I want to avoid right now due to tepid job growth and the payroll tax expiration. The luxury and mid-market sectors should do better. For my account, I am holding a couple of middle- and higher-end retailers whose stock prices have already taken their lumps. I think they have little downside should things get worse and they should do well if we manage to muddle through the next few months....281 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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