As the year draws to a close and the Christmas and New Year festivities approach, the holiday season brings opportunities for gatherings, celebrations, and hopes for the year ahead. For investors, it’s also a prime time to explore potential investment opportunities.

The "Santa Claus Rally" is one of many seasonal effects in the U.S. stock market. First identified in the 1970s, it traditionally refers to a market uptrend during the last five trading days of December and the first two trading days of the new year. Over time, this period has expanded to include the post-Thanksgiving timeframe.

According to Wealth Management, the holiday shopping season is a critical indicator of consumer economic sentiment and spending willingness, which is essential for retailers. In the past five years, sales during November and December have averaged 19% of the total annual retail sales.

With consumer spending typically rising during the holidays, investors generally hold an optimistic view of the retail sector. Retailers often conduct significant promotions during Christmas to attract consumers.

This week's Opportunity Mining takes a closer look at the retail giant $Walmart (WMT.US)$ . As an evergreen stock in the U.S. market, what factors support its long-term bull run? Can its strong performance continue?

Steady through market turbulence

Founded by Sam Walton, who began his journey with a hardware and grocery store, Walmart opened its first discount department store in 1962. This store was the precursor to the global Walmart chain. Walmart went public on the NYSE in 1972 and has weathered numerous market cycles, providing remarkable returns to investors over five decades.

Sam Walton introduced the concepts of strict cost control and high-volume, low-margin sales to the U.S. retail industry. Walmart cut out middlemen by purchasing directly from factories and developing private labels. Operationally, it accelerated logistics and cash flow turnover, often using warehouse-style store designs to save costs.

Beyond supermarkets, Walmart expanded its formats to include discount stores, neighborhood markets, and Sam’s Clubs, extending its business from the U.S. to a global presence, and becoming an undisputed retail giant.

As we enter 2024, Walmart has achieved better-than-expected growth on a large scale. In November, Walmart reported total revenue of $169.6 billion, a 5.5% year-over-year increase, with adjusted earnings per share of $0.58, a 13.7% increase. This marks the 19th consecutive quarter of revenue beating expectations and the ninth quarter of earnings exceeding forecasts.

Company management observed that U.S. consumers remain resilient, with stable behavior over the past four to six quarters. In its core U.S. market, sales of general merchandise turned positive, and the company’s market share increased.

Jefferies expects Walmart to be well-positioned as the holiday season approaches. Robust traffic trends at Walmart U.S. and Sam's Club U.S., which saw transactions increase 3.1% and 6.4% respectively, should continue.

Holiday Express

According to Facteus, Walmart’s sales saw a 3% year-over-year increase during Black Friday. In contrast, competitors like Target (TGT) and Best Buy (BBY) experienced declines. Walmart stated that its significant discounts during promotions led to record single-day sales during Black Friday.

RBC Capital notes that consumers are becoming increasingly choosy in an environment of high inflation. U.S. consumers value cost-effectiveness, opting for private-label products and delaying big-ticket purchases.

The institution also highlighted that Walmart’s advertising and membership revenue now constitute one-third of its operating profit. This structural shift allows Walmart to maintain competitive pricing while expanding margins, putting pressure on competitors.

Technical analysis

On the daily chart, Walmart’s stock price has been in an upward channel since the end of 2023. Following the latest earnings report, the stock price broke above the channel’s upper boundary, turning resistance into support, which further fueled the uptrend.

Typically, when prices break above the upper channel line, it indicates a bullish trend. However, investors should be wary of potential false breakouts and may want to wait for confirmation by entering positions after a market pullback.

Past performance does not guarantee future results. This is for information and illustrative purposes only. It should not be relied on as advice or recommendation.

If you are optimistic about the overall performance of the U.S. retail sector, there are sector ETFs available, such as $SPDR S&P Retail ETF (XRT.US)$ and $VanEck Retail ETF (RTH.US)$ . Although both track retail performance, they operate differently.

XRT uses an equal-weight approach, with smaller companies like GameStop among its top ten holdings. While RTH is more concentrated, focusing on large retail companies, with Walmart, Costco, and Amazon having significant weights.

Related risks

High valuation: As of the December 9 closing, Walmart’s P/E ratio stood at 38.77, which aligns with industry averages but has ranked in the top 80% over the past five years.

(Access: Detailed Quotes Page > Company > Financials > Company Valuation)

Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. This is for information and illustrative purposes only.

Increased competition: As a traditional retailer, Walmart faces competition from e-commerce companies. In addition to traditional players like Amazon, newer entrants like Shein and Temu have rapidly grown in the U.S. retail market.

Changing consumer preferences: In a high-inflation environment, consumers prefer affordable products, showing price sensitivity beneficial to the company’s performance. A shift in preferences could impact results.

Additional Disclosures: This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Furthermore, there is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.

This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeline for any particular purpose of the above content.