How the U.S. Retail Sector Looks Post-Lockdown

At one point, around 90% of the United States was in mandatory lockdown, and local economies slowed as business halted. In May, many U.S. states including New York, the former epicentre of the virus, began to gradually lift stay-at-home orders, re-open businesses, and lift other lockdown measures. In June, we saw a bounce back in the stock market for many sectors, including the retail sector, as consumers purchased more after a pent-up desire to shop built up over lockdowns.  

 

Examples of retail that rose

Retail stocks for brands such as Lululemon, Nike and Adidas rose in May as these companies experienced a spike in retail sales. Many people turned to athletic wear during the Covid-19 pandemic, and this was reflected in sales when stores re-opened. In July, this positive retail trend continued with sporting goods. Shares of Big 5 Sporting Goods Corp more than doubled in active trading in early July, to keep up with all the premarket gainers, after the sporting goods retailer released positive preliminary results for the fiscal second quarter. Trading volume also surged.

As of Monday, the SPDR S&P 500 Retail ETF (AMEX: XRT) was up 1.10 percent.

 

Warning Signs

But analysts have pointed out that the bump in consumer sales could be temporary. Here are a few reasons why. Covid-19 has continued to peak in the United States and states such as Florida, which has seen cases soar, are considering closures again. U.S. President Trump, who has remained optimistic on the virus going away, has recently changed his mind, stating that the pandemic will get worse before it gets better and donning a face mask in public.

Further, economists have warned that as the eviction moratorium expires and the U.S. federal unemployment benefits are set to stop, there will be a contraction in consumer spending. There has also been a contraction in consumer markets in Europe with the onset of new U.S. trade tariffs, such as falls seen in the wine market in France.

 

Further context

The contentious U.S. political environment renders more stimulus and economic relief uncertain during an already on-edge and acerbic election year. Protests in support of the Black Lives Matter movement and socio-economic reform continue. The recent controversies in Portland, Oregon, that saw President Trump dispatch federal agents to quell protests have people further questioning their desire to shop and return to a new normal. The usually buoyant summer season has been marked with questions of will schools reopen amid a second-wave virus, and economic fears that have put strain on families as they curb spending in an uncertain economic future.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.