This Week in Review:

A Rocky Road for Retail?

Even though much of Wall Street started its holiday early—by Wednesday, one measure of trading activity was the slowest since Jan. 3—remaining traders have been gobbling up bargains as stronger-than-expected earnings in the retail sector may signal that the holiday shopping season will be cheerier than earlier expectations.

Polaris Investment Team |


Heading into the year’s final month, Federal Reserve policymakers’ aggressive interest-rate moves and the resulting impact on stocks, bonds and housing remain front of mind. As Wednesday’s release of minutes from its meeting earlier this month showed, the Fed remains laser-focused on tackling inflation even as debate grows about whether the spate of 0.75% increases has begun to take effect, auguring a slower pace of hikes going forward. We’ll continue watching closely and adjusting your portfolios and financial plans accordingly.

After decades in business, it’s in challenging years such as 2022 that we’re especially thankful for your continued trust and confidence. We hope you had a safe and happy Thanksgiving.

Here’s what else we’re watching this week and why it matters:

  • Despite Wall Street’s optimism, inflation-battered Americans may be curtailing their holiday spending plans. A Deloitte survey found that consumers planned to buy an average of nine holiday gifts this year, down from 16 a year ago. And according to a recent University of Michigan gauge, consumer sentiment dipped to a level only seen during the 2008–2009 financial crisis and the period of double-digit inflation in the late 1970s. How will retailers coax shoppers to spend during the critical holiday season?
  • Some price relief may be on the way this Black Friday, as merchants look to clear inventory stockpiled due to supply chain concerns a year ago. Companies like Target are aggressively discounting bloated overstock of home furnishings, electronics and toys. Retail industry analysts at Adobe Analytics predict record online discounts on computers, toys and TVs this weekend.
  • Housing is hurting. U.S. home sales dropped for the ninth month in a row in October, a record streak since tracking began in 1999. Sales last month were off 28.4% from the same time last year, owing mainly to mortgage rates having doubled since October 2021. Even as borrowing costs have risen, home prices have continued to climb—albeit at a less dramatic rate—because supply remains tight.
  • Consumers aren’t the only homebuyers easing off as borrowing costs rise—institutional investors are becoming choosier as well. Real estate investing firms purchased 66,000 houses in the third quarter according to Redfin. That’s down from 94,000 in Q3 2021, a spending spree that helped push the housing market into overdrive. When it comes to housing at least, the Fed’s monetary policy has been effective in driving demand down. Now we’ll wait to see if prices follow.

Chart of the Week: Oil and Gas Burning a Little Too Hot

Nearly every market sector took it on the chin in 2022. Except one: Energy. The combination of surging post-COVID economic activity across the globe, raging inflation, war in Eastern Europe and constrained supplies of oil and gas has led to jumps in energy prices we haven’t seen in over a decade.

But as the year progresses our research team has reason to think there might be a correction in the cards. We’re noticing a growing disconnect between the energy sector’s returns and the price movement in oil.

Our chart of the week compares oil prices with the returns of the energy sector (using West Texas crude and the Energy Select Sector SPDR Fund ETF (XLE) as our proxies). Over the past 10 years, the two have generally moved in the same direction: When oil prices rise, so do energy sector returns.

But though they move in the same direction, they don’t travel in lockstep. In any given year, one might perform a little better or worse than the other. This difference in their returns is the performance spread. On average, from both a mean and median perspective, the performance of the two usually tracked fairly closely—within a 12% to 15% spread.

Until 2022. For the year to date, the performance spread has become a gap of over 54%!

Why the disparity? In recent weeks, warm weather has allowed Europe to replenish its stockpiles of natural gas, while signs of a looming recession have helped push down demand. Oil prices have retracted with velocity; the energy sector has not. This leads us to believe that pricing of the energy sector may have gotten ahead of itself, and mean reversion is on the horizon.

Many factors influence oil prices, but looking at historical returns, perhaps the energy sector is burning a little too hot. Time will tell.


A More Expensive Thanksgiving

As with seemingly everything else in our lives, Thanksgiving dinner is more expensive this year than last

The Bureau of Labor Statistics gets fairly granular in its inflation tracking—though some of its category names are a little clunky, so we’ve simplified them a bit. (For example, turkey is found under the “Raw Poultry” category.) As you can see, turkey prices in October were up about 17% compared to October 2021.

But it’s the bakers among us who face the biggest price increases. If you were looking to wow your guests with a homemade pie, well, eggs, butter and flour prices are up 25% to 45% over the past year.

The fact that headline inflation ticked lower the past month is of little solace to those of us shopping for the holiday meals. Bon appétit.

Looking Ahead

As a reminder, markets and Polaris’ offices will be closed Friday afternoon for the Thanksgiving holiday.

Next week, we’ll be reviewing a cornucopia of fresh data, including reads on home prices, consumer confidence, manufacturing, job openings and quits, inflation, third-quarter GDP, consumer spending and disposable income, vehicle sales, the Fed’s “Beige Book” of anecdotal reports from around the country, and the November unemployment rate.

If you’d like to learn more about our tactical or fundamental strategies, please contact our team at 800-268-9046 or

Please note: This update was prepared on Friday, November 25, 2022, prior to the market’s close.

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