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Wall Road Week Forward: Traders are betting old-fashioned retailers will bounce again in 2021

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NEW YORK (Reuters) – As the holiday shopping season draws to a close, U.S. stock investors are examining whether the long-running stocks of brick and mortar retailers can sustain their recent rally in anticipation of a full economic reopening in 2021.

The SPDR S&P Retail (NYSE 🙂 ETF, which tracks a broad group of retailers such as department stores and specialty stores, is up nearly 40% this year. The gain reflects a rally that has boosted the stocks of companies in particularly economically sensitive sectors like industrial and energy following recent breakthroughs in COVID-19 vaccines.

Those numbers pale in comparison to the massive gains seen by online companies like Amazon.com Inc (NASDAQ :), Etsy (NASDAQ 🙂 Inc, and Wayfair (NYSE 🙂 Inc) after the pandemic accelerated a shift towards internet shopping .

However, some investors believe that more traditional retailers may be able to fill this void in the coming year. Her view agrees with a broader bet that coronavirus vaccines will fuel widespread economic reopenings in the United States and help the industries that have suffered most from the effects of COVID-19.

"There is anticipation for the shopping," said Kim Forrest, chief investment officer at Bokeh Capital Partners. "Wall Street looks forward to a time when we're not locked up."

Investors will be keeping an eye out next week on the widely used University of Michigan consumer sentiment index, which remains below pre-pandemic levels but has recently increased.

One source of consumer spending could be additional stimulus checks for individuals included in a $ 900 billion coronavirus relief package that Congress has approved, said Alex Ely, chief investment officer of the small and mid-cap company Macquarie Investment Management's growth equity teams.

At the same time, brick and mortar stores that have withstood the economic onslaught of the pandemic could have a more solid stand next year as competitors stalled, said Eric Marshall, portfolio manager at Hodges Capital Management.

J.C. Penney, J. Crew, Pier 1 Imports, and Neiman Marcus are among the retailers filing for bankruptcy this year.

"On the back of that … a period of prosperity could come," Marshall said.

Retail stocks are unlikely to advance in unison as the pandemic has only compounded long-standing trends that will separate winners from losers, investors said.

Jason Hans, portfolio manager at BMO Global Asset Management, expects department stores to resume their underperformance. At the same time, certain retailers could catch up once in-store purchases recover, he said. He advanced to his position in the children's clothing company Carter & # 39; s (NYSE 🙂 Inc.

The online presence of traditional retailers can also play an important role in determining their fate.

For example, Marshall from Hodges Capital owns shares in American Eagle Outfitter (NYSE 🙂 which has significantly increased its online sales.

Forrest of Bokeh Capital said she was interested in retailers like Urban Outfitters Inc (NASDAQ :), which she classifies as "good real merchandisers" – those who successfully attract customers to impulse buying and have the potential to use that strength in online sales to implement.

However, the retail rebound could come with some problems. US retail sales fell more than expected in November, likely hurt by new COVID-19 infections and falling household incomes. Further delays in additional fiscal stimulus could weigh more heavily on economic indicators in the short term.

However, some investors are willing to look past this current weakness.

"Fundamentals will be much better in the second half of 2021 and 2022," said Ely of Macquarie. "But you want to buy six to nine months in advance if things are great. Now is the time."

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