CostCo Flies Under the Radar in January

On Wall Street they say as January goes so does the rest of the year for the stock market – 85% of the time that is. Since the S&P ended January on a banger a blowout for stocks this year may be in the offing, if you happen to be in the right sectors of course. The folio is very diverse across sectors and market capitalizations so I’m assured a spot on any gravy train.

How much gravy I get to scoop is another matter. If January is any indication I’ve my work cut out for the rest of the year; on gains I ended January in the dog house:

Nasdaq 2.01%
S&P 1.41%
Dow 1.27%
Worst-known 1.06%

Is COST Riding the Minimum Wage Bill?

I support a higher federal minimum wage. It’s a well established fact that the federally mandated minimum wage, which has been stuck at $5.15 since 1997, hasn’t kept up with the rise in the nation’s productivity, much less with inflation – it should be about $6.75 as of January 2007 had it kept up with inflation. By 2009 Congress wants it to be $7.25, which is roundabout where it will need to be by then to keep up with inflation – assuming a 3% annual rate of inflation.

So what would Americans do with all this new money coming in? Since Americans hardly save the money is likely to be spent at consumer discretionary stomping grounds like CostCo.

Although COST has been trending higher since it broke a key resistance level back in October it didn’t really take off until the second week of January when economic data showed that the national average hourly earning rose more than expected. So it’s fair to say investors view rising hourly earnings as bullish for consumer discretionary stocks.

With Congress set to mandate a rise in the federal minimum wage I think COST is getting a minimum wage “bounce”. In January it had the biggest gain when measured by moving average (MA) of Returns to Date (RTD):

Change in MA of RTD (12/29/06 to 1/31/07)

COST +4.71%
NHP +3.60%
MSFT +2.28%
IWR +1.93%
PG +1.03%
IJR +0.51%
EFA +0.01%
EEM -0.83%
BAC -1.33%
ADBE -2.63%
PBW -2.88%
IGE -3.74%
EBAY -4.82%
SLV -8.74%

In December and January while many on the Street were fixated on techs it seems smart money was moving into discretionaries perhaps in anticipation of a rise in the minimum wage.