Upcoming Year-End Shopping Season... Rising Expectations for Eased Market Tightening Concerns

Policy Uncertainty Expected to Ease Toward Year-End

On the afternoon of the 14th, one day before the end of '2021 Korea Sale Festa,' the largest shopping festival in Korea, citizens were coming and going on Myeongdong Street in Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Ahead of the year-end consumption season, major U.S. retailers have reported solid earnings. Despite widespread concerns about stagflation (economic stagnation accompanied by rising prices), analyses suggest that premature worries about an economic slowdown are unnecessary as private demand remains strong. There is also a forecast that the large-cap stock market rally could return as inflationary pressures ease.

On the 21st, Samsung Securities made this outlook for the period following the year-end season. In fact, Macy's, a leading U.S. department store, announced a surprise third-quarter earnings beat on the 18th (local time), causing its stock price to surge 21% in a single day. Another department store brand, Kohl's, also rose about 10% on the same day due to better-than-expected results. Both companies significantly raised their annual earnings guidance, anticipating strong year-end sales performance. Notably, they raised earnings per share guidance more than sales. Samsung Securities analyst Junghoon Seo explained, "This implies an expectation of improved corporate operating profit margins, indicating that consumers can sufficiently absorb higher selling prices."

He emphasized that three key implications can be drawn. First, despite widespread stagflation concerns, private demand remains robust. Therefore, premature fears of an economic slowdown are inappropriate. Additionally, if operating profit margin improvements are certain, companies may have stronger incentives to secure inventory. The recent bottlenecks are explained as stemming from excess orders driven by positive sales expectations. Furthermore, if household demand for consumer goods eases after the year-end consumption season and corporate excess orders normalize, the currently highlighted inflationary pressures are likely to ease as well.

Hence, a somewhat positive outlook is possible going forward. Analyst Seo stated, "Energy and logistics costs, which have been major drivers of recent price increases, have already passed their peak, and wage growth, which could be a structural inflation seed, remains limited. On the supply side, having experienced bottlenecks for a considerable period, companies are likely to overcome them through investments or alternative routes." The recent return of workers can also reduce price pressures by increasing production capacity. Ultimately, this trend may strengthen as the year-end consumption season progresses.

He also sees potential for resolving policy uncertainties. The appointment of the Federal Reserve (Fed) Chair is expected to be decided before the U.S. Thanksgiving on the 25th, which could reduce volatility in the bond market. The U.S. Democratic Party aims to conclude the social welfare and climate change budget bills currently pending in Congress around the same time. Treasury Secretary Janet Yellen has forecast the next debt ceiling breach for mid-next month, so related developments are expected soon. Additional announcements regarding discussions on the U.S.-China summit are also anticipated.

Recent net buying by foreign investors in the domestic stock market is another positive factor. This can be seen as a signal of rotation into large-cap stocks rather than individual stock rallies. Analyst Seo said, "The domestic electric & electronics, transportation equipment, bio, and financial sectors have become attractive due to prolonged corrections. Considering that concerns over China's economic slowdown are easing, a rebound in cyclical stocks centered on materials sectors can also be expected."

This content was produced with the assistance of AI translation services.