Citi sees 'favorable near term setup for retail stocks' after election

Investing.com -- With the U.S. presidential election now behind us and Donald Trump securing a decisive victory, Citi analysts anticipate a favorable near-term outlook for retail stocks. 

Citi said in a note Wednesday that the recent election season, which often stirs consumer uncertainty, has now concluded, allowing the focus to shift toward the holiday shopping season. 

The bank believes consumers will carry on and likely embrace the holiday season, even with the country’s politically divided response.

Citi sees several tailwinds boosting retail stocks in the coming months. "Weather has been unseasonably warm, which is a negative at this point in the year,” the bank’s analysts noted, highlighting that many consumers have delayed purchasing seasonal items. 

Even so, they believe that as cooler weather approaches, this pent-up demand for coats, sweaters, and other winterwear may soon be released, providing a lift for retail sales.

Investor sentiment in retail stocks has also been cautious lately, partly due to election-related uncertainty. 

“Many investors have been cautious on retail stocks,” Citi noted but pointed out that recent Citi credit card data has not indicated any significant drop in spending, suggesting that underlying consumer strength remains intact.

Historically, November is the best month for retail stocks, averaging a 6.4% gain over the past decade and outpacing the S&P 500 by an average of 262 basis points. 

“[The] Santa Claus (Rally) is real,” Citi reminded, suggesting that retail stocks often see a strong end-of-year performance.

However, they add that policy risks remain. 

The analysts warned that Trump’s victory could signal an increase in tariffs on Chinese imports, which may impact retailers reliant on goods from overseas. 

Stocks with exposure to these risks are said to include Steven Madden (NASDAQ:SHOO ), Oxford Industries (NYSE:OXM ), Five Below (NASDAQ:FIVE ), Best Buy (NYSE:BBY ), and Boot Barn (NYSE:BOOT ).

Source: Investing.com