Retail Stocks on the Rise: Is it Time to Buy?

You could be excused for thinking that the Australian economy and Australians themselves are doing well when you hear that the unemployment rate is at a 50 year low and under employment is tumbling to a 40 year low. You might even be feeling positive despite inflation breaking above 6 per cent and being at its highest level since 2001.

Many retail stocks are rising due to increased spending

While many are employed, inflation is eroding our spending power with price rises across the board and with the three interest rate rises over the last three months you would think retail spending would be falling. Yet according to the RBA it was up 0.2 per cent in June this year and up 12 per cent compared to June 2021. The RBA will report on retail spending again on 3 August and 28 August, so it will be interesting to see if spending continues to increase.

The increased spending is being reflected in strong rises across many retail stocks. Myer is leading the charge up nearly 45 per cent after it released it FY22 trading update this week reporting that total sales for the second half were up 16.5 per cent. JB Hi-Fi is also up around 10 per cent and Harvey Norman is up around 11 percent in July. Reporting season is also underway with most retail companies due to report in August and the ones to watch include JB Hi-Fi on 15 August, WOW on 25 August and WES on 26 August.

If the RBA reports an increase in retail spending next week, then if Myers results are anything to go by, there may be some opportunity in the stocks mentioned above. So, my advice is to watch what unfolds with these stocks just prior to their reports being released, as this may be an indication of where their share price is heading. There will also be opportunities in other retail stocks although you will need to be selective.

What were the best and worst performing sectors last week?

The best performing sectors included Materials up 4.94 per cent followed by Energy up 3.36 per cent and Financials up 2.49 per cent. The worst performing sectors included Healthcare down 0.83 per cent followed by Consumer Discretionary down 0.69 per cent and Communication Services down 0.13 per cent.

The best performers in the S&P/ASX top 100 stocks included Mineral Resources up 14.78 per cent followed by Evolution Mining up 12.82 per cent and IGO up 11.52 per cent. The worst performing stocks included JB Hi-Fi down 5.33 per cent followed by Atlas Arteria down 5.14 per cent and Computershare down 4.29 per cent.

What's next for the Australian stock market?

July was a very good month on the All Ordinaries Index with the Australian market up 6.33 per cent but what is even more exciting is that most of the rise occurred over the last two weeks on increased volume. While we know things can change quickly, the strong move up over the past two weeks is a very good sign that the bullish run will continue.

The strong close on Friday is also a good sign, as it signals that the market is highly likely to rise into this week. That said, I am expecting the market to fall for one or two weeks very soon, so don’t be surprised if our market rises early in the week only to fall away at the end of the week.

Given the challenging nature of our market this year and its ability to move in either direction quickly, I am loath to call the low of 6,581 on 20 June the bottom of the bearish run and that a new bull run is unfolding, as I will not be convinced that a bull market is unfolding until we see the next move down. Given this, it is far better to err on the cautious side rather than being overly bullish.

While there is plenty to be optimistic about in regards to a number of the top stocks, reporting season is on our doorstep, therefore, the market is likely to be volatile and now is not the time to be bold and blindly jump into stocks early hoping for a good result.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.