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Investing.com -- Analysts at DA Davidson are optimistic on retail stock outlook following the 2024 election, but remain cautious about the sector's near-term prospects in the holiday season.

“Our group usually underperformed from Black Friday through year end,” wrote analyst Michael Baker in the note, pointing to the 0.3% rise in SPDR S&P Retail ETF (NYSE:XRT) on average from the pre-Thanksgiving market close to year-end, since 2010.

In fact, the retail ETF has underperformed the broader market in 10 of the past 14 holiday seasons.

The analysts pointed out that stocks with high holiday exposure tend to see the steepest declines, including those of retailers like Dick’s Sporting Goods Inc (NYSE:DKS) and Best Buy Co Inc (NYSE:BBY), which derive a significant portion of their profits from the fourth quarter.

While companies like Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD), have historically fared better, posting average gains of 5.1% and 3.7%, respectively, during the holiday period.

Analysts anticipate retail stocks could see stronger performance in the first quarter of 2025. The XRT typically to do better in January and February, with the sector historically outperforming the broader market in the first quarter, as investors move past the uncertainty of holiday results.

Year-to-date, retail stocks have performed well, with XRT up 14.6% as of November, though it remains behind the S&P 500’s 25.8% gain. Within DA Davidson’s 14-name coverage of traditional retailing, “Broadlines&Hardlines”, nearly half, including Walmart Inc (NYSE:WMT) and Costco Wholesale Corp (NASDAQ:COST), have outperformed the market, the analysts added.

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