Holiday Spending Trends and Smart Moves

This episode drills into holiday spending trends, sector winners and losers, and explains the “January effect. Plus, practical tips for smarter budgeting and investing as we head into the new year.

Mary MacNamara

Hello everybody and welcome to the Cents of Security Podcast. Today we’re discussing holiday spending trends, consumer reports, and the January effect. So luckily, we’re here with InvestMentor’s, James Yendrey to talk all about it. Welcome James!

James Yendrey  

Hey, how’s it going Mary?

Mary MacNamara  

From a financial perspective, what does this year’s holiday spending tell us about consumer confidence and the broader economy.

James Yendrey  

The data picture seems a bit mixed. On one hand, consumers are spending near record amounts about $890.00 per person according to the National Retail Federation. Second, at which you pointed out is the second highest on record. That really suggests underlining resilience. But then on the other hand, you have Deloitte, which found an average spending down 10% year over year, which tends to signal caution.

What that really telling about how people are spending when 89% are deal hunting and 73% are re-gifting. So, if you see that tray coming around the holidays that you gave your aunt one time it’s a strategic adoption, we’ll call it, rather than an economic burden. Consumers aren’t really retreating from the economy.

They’re demanding more value for every dollar. This reflects persistent inflation fatigue and economic uncertainty, but it’s also savvy financial behavior. People are spending, but they’re just being more careful about it.

Mary MacNamara  

So, are the budgets tightening or are they reallocating spending in a way that signals different financial priorities?

James Yendrey  

So, it’s definitely reallocation more than pure austerity. The main shift towards experience over fiscal goods is going to be key here. This has been building up for years, but it’s really accelerated over the post pandemic economically, this makes sense. Experiences provide more lasting satisfaction for a dollar, and they’re less susceptible for buyer’s remorse.

If you take your family to the trip in Colorado for the winter, you’re not going to really regret that, but if you buy a car, you might have buyer’s remorse immediately, 7% are switching over to lower price brands, really tightening the belt. Most consumers are playing a more sophisticated game by shopping earlier to capture the deals using pay now, buy later methods, which are in itself inherently risky.

They’re prioritizing what matters, whether it’s travel gatherings or specific meaningful gifts as opposed to the fluff that we were accustomed to. It’s more budget optimization, I would say, rather than desperation.

Mary MacNamara  

Which sectors are looking good right now?

James Yendrey  

So, you can classify it into two different categories. We can call it winners and losers. So, winners are going to be discount retailers’ consumers are actively trading down benefits, Walmart’s, Costco’s, off price stores. Travel and hospitality will continue to be winning around this time of year especially to continue the whole experience spending a tech, specifically small electronics and appliances have benefit. Usually these categories are genuinely discount, genuinely discounted during the holidays, not these Fugazi, so buy this, but it was the same price before. But on the other token, you have the losers premium and luxury retailers with without compelling value prop.

And more mid-tier department stores are starting to get squeezed. They’re neither cheap. Nor special, we’ll call it enough. Traditional toy retailers may face price pressures. Like you’re thinking the high-end custom toy manufacturers. And frankly any sector relying on impulse purchase when 89% of consumers are comparison shopping.

So they’re probably going to the store and then looking it up on Amazon to see if they can get a better deal, more or less the broader shift is retailers with dynamic purchasing and loyalty programs. These are going to be the winners rather than those who stuck to traditional seasonal pricing models that tend to struggle.

Mary MacNamara  

What’s so interesting to me is one of the things that came is that retail prices, they seem to jack those up and then they say, okay, now this is 40% off, right? If you’re at the mall and it’s like they just manipulate the pricing so much, and then you think, oh, I’m getting a really good deal here.

And sometimes there are really good deals especially if you’re doing like last minute shopping at a, brick and mortar.

James Yendrey  

Yeah, absolutely.

Mary MacNamara  

All right so which type of products tend to see deeper discounts or pricing changes in January or February?

James Yendrey  

I would say likely fitness equipment, believe it or not, massive discounts in late January because you start to have the taper off. People are very motivated at the beginning of the year. The New Year’s resolution enthusiasm wanes and then retailers are trying to clear inventory. Winter clothing goes on, deep discounts.

Last year’s tech, they’re dropping newer models, usually in Q1. New versions tend to be released at CES in January. Those are going to have heavy discounts, furniture and mattress places we’ll often see steeper discounts usually around President’s Day.

So, think February holiday decorations obviously plummet after Christmas. You’re not really buying holiday decorations in March or February. if it’s not time sensitive and retailers traditionally hold excess inventory post holidays, just wait.

You’re at that point in time, leveraging the need to clear the stock. And just you. If you can wait them out, then they have more of an urgency to get it than you need it. But if it’s something you genuinely need or will bring holiday or value to you during the holiday season, don’t optimize a way your own utility by waiting for what would be effectively a marginal savings.

Mary MacNamara  

So what is this January effect anyway?

James Yendrey  

So, this was something that was, I believe it was discovered by actually an investment banker in 1942. They started to really track it. But the January effect is a market anomaly where stocks and especially small caps, have historically shown higher returns in January compared to other months.

It was first documented, back years ago and then became common knowledge. But the traditional explanation usually involves several factors. Tax loss harvesting where investors are selling off, losing positions for tax benefits, then buying back into the market in January.

Mary MacNamara  

Okay, so we’re coming to the end of the year, and how should everyday investors think about for the start of this coming year?

James Yendrey  

I would just add that just don’t plan around the January effect. It’s waned over the last decade has become, or few decades as it’s become more adopted and the impacts are more nominal but instead use January strategically for things that you can control, maximizing your IRA contributions in early years. Time in the market again is going to be timing the market, rebalance your portfolio, if it’s drifted off of its baseline targets that you had set from the previous year January’s clean psychological break, and then review and adjust the contribution rates if you got a raise, set up, different types of allocation.

The real January effect should care about I would say is more behavioral. It’s a natural movement for a financial reset and a renewed sense of discipline. Use that psychological momentum for smart systematic investing habits and not necessarily chasing anomalies or anomalies that sophisticated markets have already pretty much priced away.

And then stay consistent, stay diversified, and let compounding do its work regardless of the time of the month.

Mary MacNamara  

Alright, so we’re not quite in January yet. We’re still in mid-December. And have you noticed how tariffs have impacted shopping at all? I know things are more expensive and retailers are probably not trying to pawn off the tariff increases onto the consumer.

But have you started to see some of that happening?

James Yendrey  

So, there are some companies, like Walmart is a huge proponent of absorbing the, as much of the tariff impact as they possibly can. They stated it in their earnings calls. They ate the tariffs within the first half of the year.

They decided that okay, going into the second half of the year they’re able to distribute or bring some of the costs back down or distribute some of the prices that tariffs have impacted throughout some of the products that they have. But they’re still able to absolve most of the costs that are out there.

But what I would say is this time of year is going to be really interesting to see how they incorporate this with all the sales going in. The classic trip retailers try to inflate prices before the weeks. Maybe they’ll bake in some tariff costs as well and then break back down to some normal prices.

So, it looks like an impressive 50% markdown when you’re basically paying what it was worth all along. And then I guess some things that I would say is watch out for languages like compare at or original price without specifying that the price has actually changed. These psychological traps, we try to anchor to a higher, more original price.

And we feel like we’re smart. We got the deal. Even though we’re paying fair market value to it and I would assume that tariffs would be baked into the inflated numbers and then they come back in at a smaller at a fair market price that consumers think is a better deal.

Yeah. But you really see a lot of good savings within some of the tech, within the tech and the appliances space. We’re talking 20% to 40% off of things like, laptops or kitchen gadgets, washers and dryers. Just because they’re trying to restock and re-inventory. So those things though have had some tariff impact.

You’ll tend to see deep savings within those types of segments.

Mary MacNamara  

James, this is great. I wish you a happy holiday and all of our listeners too. And is there anything else you’d like to add before we wrap up?

James Yendrey  

I just want to wish everybody a happy holiday. You as well, Mary. Thank you for bringing, bringing me onto the podcast as a regular contributor and I look forward to the next time.

Mary MacNamara  

Yes, we’re coming up to January, so we’ll have to, we’ll have to come up with some good topics and folks always forget to say this, but if you have any ideas or you want to hear about different topics, let us know. Send us a note.

All right. Thank you very much.

James Yendrey  

Thank you. Happy Holidays, Mary.

Mary MacNamara  

Happy Holidays!