Despite the continuing pandemic and global jitters about everything from climate change to inflation, the good times have kept rolling in the markets during 2021. The U.S. stock market continued to soar across the board—large-cap, small-cap, growth, value—seemingly every segment of the stock market just kept going up. Now you might say the average consumer isn’t heavily invested in the stock market, but there are some things about the market that affect retail sales. Companies that buy overstock and surplus merchandise benefit from strong retail sales. The average consumer has more confidence in their future when they hear on the radio how good the economy and market are doing. Regardless of whether or not they are actively trading. There is an old saying, “high tides raise all ships” and this is true here, too. Also, even though the Dollar Tree shopper buying closeouts and deals may not be an active trader, it is likely their 401K or IRA are invested in the market. Closeout wholesalers and closeout websites also do better when the stock market does well, because it affects the consumers buying.
Consider the Dow Jones U.S. Total Stock Market Index. The broad U.S. market is up more than 24% year-to-date as of mid-December and nearly 17.5% annually over the past five years. Even over the past 10 years, the index is up more than 16% a year—all far above the long-term average annual returns of 9% to 10%. This makes the news and the papers and this is a message sent to the average consumer buying closeouts, excess inventory and imports in stores like Walmart, Costco and TJ Maxx stores. Surplus merchandise sells better when the consumer has high levels of confidence. And consumers feel better when the general economic news is better. Closeout wholesalers that buy overstock inventory would suffer if the stock market were crashing, people were losing jobs, and consumer confidence deteriorated.
But relying on such returns to continue indefinitely could prove to be a major mistake. Equity markets are facing headwinds, including: the continuing unpredictability of public health; an economic environment with inflation at its highest level since the early 1990s, driven largely by supply-chain constraints that, while transitory, have lasted longer than many expected. These are the things that could put an end to the good times we are experiencing, and along with high consumer confidence, stock market returns would go out the window and so goes retail sales. Companies that have excess inventory for sale are best served to sell surplus merchandise both in good and bad times,rather than wait to sell until it is distressed inventory. For 3PL warehouses shutting down and liquidating, they should think about getting rid of closeouts before they have to; instead, selling when it is more convenient and closeout wholesalers are ready to buy.
Americans know their day-to-day expenses are rising: Costs for grocery staples have been on an upward march for months, gas prices have gone up by 20 cents in a month and more than $1.20 from a year ago. These are predecessors to consumer spending slowing, closeouts increasing and confidence decreasing. Numerous government inflation benchmarks are hitting levels not seen in years or even decades.
Some prominent economic voices have weighed in lately with their concerns. Twitter co-founder Jack Dorsey issued a gloomy prediction recently: "Hyperinflation is going to change everything. It's happening," he tweeted Friday night. Hyperinflation is dangerous and would have a negative affect on stocks because money would leave the market and more into more secure holdings like bank CDs and treasuries. As the market drops, this news would affect bargain shoppers searching for deals on overstock inventory, closeouts and businesses selling old inventory.
Larry Summers, who was the treasury secretary and a White House adviser in the Clinton administration, was less terse but more pointed: "We're in more danger than we've been during my career of losing control of inflation in the U.S.," he said at a virtual conference this month, lambasting what he characterized as "a generation of central bankers who are defining themselves by their wokeness" in Western economies. If we begin to experience hyperinflation there is little anyone can do. Companies would shut down warehouses and liquidate because it becomes almost impossible to make profits under these conditions. Closeout websites and other closeout brokers might do better than other industries, however, it is an uncertain climate in which to operate a business. There would surely be companies going out of business, 3 PL warehouses shutting down and companies liquidating inventory.
The S&P 500 and Nasdaq Composite indices, for instance, closed at record-highs last month, besting highs that were only just set earlier in the year, and the Dow Jones Industrial Average of 30 large company stocks closed at a record-high a month prior. Despite a pandemic-battered economy, the S&P 500 and tech-heavy Nasdaq are both up approximately 30% compared to the same period a year ago, and the Dow is up more than 20%. In addition, retail sales are unbelievably strong and Amazon’s sales are up nearly 50% since the beginning of the pandemic. This helps closeout websites and other online closeout sellers and consumers become more likely to make online purchases.
While the pandemic's abrupt disruption to American life is another reminder that it's impossible to predict the future, historical patterns and the precariousness of present market conditions have some economists warning that current growth rates may be unsustainable, especially amid inflation worries and potential tightening by the Fed of monetary policy. Businesses will have to pay higher interest to borrow money, making it more difficult to hold obsolete and surplus inventory. Closeout brokers can be helpful in selling products to wholesale liquidators and getting rid of old merchandise. This will help turn the inventory into cash, making it easier for businesses to borrow. One measure often used by economists to predict a potential asset price bubble is the cyclically adjusted price-to-earnings (CAPE) ratio, developed by economist and Yale University professor Robert Shiller. The measure looks at firms' inflation-adjusted real earnings per share over a 10-year period to indicate possible over- or under-valuations.
There are times when numbers tell a story, and this is one of them. And sometimes, as in this case, those numbers can have both social and investment significance. Let’s look at two numbers: $4.3 trillion and $908 billion. The first represents how much the stock market rose in November 2021, according to Wilshire Associates, an investment management firm whose Wilshire 5000 Total Market index measures the value of the entire U.S. stock market in dollars, not in points like the Dow industrials or S&P 500. The second is the size of a proposed economic stimulus package to help the needy that was floated by a bipartisan group of senators and is being negotiated in Congress. Both will be helpful to companies selling closeouts and trying to get rid of excess inventory in a high flying stock market economy.
Merchandise USA buys overstock liquidations from businesses with too much inventory. We have been inventory liquidators for more than 35 years and our warehouse is filled with closeouts, overstock inventory and other liquidation products.