Global investors “regained some appetite for risk” by bulking up on equities while lowering their cash positions — which reflects a shift in investment portfolios that had been much more bearish on stocks, according to the latest Bank of America Merrill Lynch Fund Manager Survey.
But the retail sector continues to struggle as investors take profits and pull back from department store stocks in particular.
The poll, which is conducted monthly and gauges the sentiment of global fund managers who collectively have $576 billion of assets under management, also showed a “strong consensus” over a U.S. interest rate rise next month. “With growth and inflation expectations notably higher after new U.S. payroll data, they have cut cash holdings and increased exposure to equities, real estate and alternative investments,” the researchers noted, adding that the “percentage of asset allocators overweight equities rose significantly by 17 points to a net 43 percent, while lowering cash overweights to their lowest level since July.”
There was also growing confidence in a stronger global economic rebound, “with net expectations of it strengthening in the next 12 months up 22 percentage points from October.”
Within the global equities market, investors have shifted holdings between sectors, and analysts say current valuations already reflect the impact of a Federal Reserve interest rate hike in December.
Regarding the retail sector, lackluster sales and profits and bloated inventory levels — especially at department stores — have forced investors to reduce their exposure in the sector. As a result, the WWD Global Stock Tracker is down 6.7 percent to 107.26 for the three-month period with 82 stocks declining and 18 advancing.
The decliners for the three-month period include Macy’s Inc. with a 38 percent drop to $38.62 and Nordstrom Inc. with a 31 percent decline to $54.73. Bon-Ton Stores Inc. is off 43 percent in the three-month period to $2.25 and Men’s Wearhouse, which is struggling to wean consumers off of hefty markdowns at its Jos. A. Banks unit, is down 67 percent to $19.16. The bulk of the 82 decliners in the tracker are down between 15 and 25 percent for the three months.
Analysts have noted that consumers are spending more of their disposable dollars on autos and dining. Warmer temperatures and an October that saw little “sweater weather” also impacted sales at department and specialty stores. Analysts have also said there’s been a lack of compelling fashions to draw shoppers into stores.
Recent data from MasterCard Advisors shows year-over-year sales strength at restaurant, grocery and furniture stores with department stores, luxury and electronics showing year-over-year declines. What the data also showed was robust growth in sales at small businesses — stores with annual sales below $50 million. MasterCard noted that as year-over-year sales at larger specialty apparel stores are flat to slightly down, sales at small business apparel stores are up over 7 percent.
In a separate small business survey by Bank of America, the firm noted that “confidence in the economy has risen dramatically.”
“It’s at the highest levels we’ve seen since the survey began in 2012,” the analysts noted. “Small business owners not only anticipate a healthier economy, but they also report plans to grow their businesses and to hire more employees over the next 12 months, all at a much higher rate than in recent years.”
The survey researchers also noted that small business loan demand is up, “which we see as a key indicator that our clients’ growth trajectory, as well as the overall health of our country’s economy, are on the right track. In fact, the number of small business owners who applied for a loan in the past two years increased by more than 50 percent since last year.”