Second half may bring a recovery for JCP, KSS

Posted May 12th 2008 3:33PM by Eliza Popescu
Filed under: Forecasts, Consumer Experience, Penney (J.C.) (JCP), Kohl's Corp (KSS), Economic Data, Housing, Federal Reserve, Recession

I know that what you probably wanted to hear most is that the economy's slowdown is at an end so that some of your beaten-down stocks could enjoy a nice recovery. When the stock markets started declining towards the end of last year, SmartMoney tells us that analysts began to place bets on when we might see stocks rebound. Back then, many fund managers had expected a rally in the second half of 2008.

The Federal Reserve's decision to slash interest rates several times certainly gave a temporary boost to stocks -- not enough for a long-term rally, though. Daily concerns such as the deep housing slump and the rising inflation today give the impression that a second-half comeback is but a dream; it that would be quite hard to accomplish.

While analysts on Wall Street mostly believe a long-term rally is not too realistic now, they believe a moderate boost, stemming from the Fed's rate cuts and the $117 billion in tax rebates going into banks' accounts, is likely. On the other hand, looking at corporate profits, Citigroup analysts believe that predictions related to stocks' earnings figures are too high when taking the challenging market conditions into account.

There is some good news, though. Citi analysts said they see one sector outperforming: retailing. Retailers have a good chance to overcome the weak economy, they say, helped in part by the tax-rebate checks. They picked J.C. Penney Inc. (NYSE: JCP) and Kohl's Corp. (NYSE: KSS) as they have already slashed their first-quarter earnings estimates so that "the bad news is priced in."

But, despite all of this, analysts agree that the economy is still in bad shape. April's Federal Reserve Beige Book report was quite disappointing, showing an economy in worse shape compared with the beginning of the year. This was the result of continued concerns about consumer spending, soft labor markets and soaring prices for food and energy.

But don't be too scared. Only a few analysts expect times to get too much worse. So there still is a chance to see a recovery faster than expected.

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

Tags: economy, forecasts, inthenews, J.C. Penney, J.c.Penney, jcp, Kohls, kss, recession