As the chart shows, it was around that time that the retail chain store sector started to outperform the rest of the market. The sector continued its outperformance until last autumn when it started to decline. The reason then was fears that interest rates had bottomed out and that increases were on the horizon.
Investors will now be focusing on the prospects for the sector in 1997 and which stocks will prove the pick of the crop.
Most analysts are saying that 1997 will prove another good year for retailers thanks to rising consumer spending and the added factor of building society windfalls. Set against this is the prospect of rising interest rates which could dampen the celebrations considerably.
Sectors that should reap the most handsome rewards from 1997's windfall gains are likely to be the same ones which came top of the pile last year: DIY retailers, electricals and furnishings.
These will be boosted not just by consumers' propensity to buy big- ticket items after their building society windfalls but also the improvements in the housing market.
On that basis Dixons looks good value as the dominant player in electrical retailing. It should also benefit from the March launch of the new Nintendo machine, which is set to become the "must have" computer hardware of the year.
In furniture MFI has already performed strongly but could enjoy a further rerating in 1997. Other stocks with exposure to the housing market should also benefit. That means Kingfisher, which owns B&Q as well as Comet. Items such as carpets and beds should also do well, though shares in some retailers in this market, such as Carpetright, are already expensive.
But as the stock market typically looks around 18 months ahead, investors need to be aware of the trends not just for 1997 but for 1998 as well. That year is likely to prove much tougher for retailers as the building society windfalls fade away. And even if more societies do take the flotation route, the largest players such as Halifax and Woolwich will have been and gone. Add to this the prospect of yet higher interest rates.
All this could mean a switch to more defensive stocks at some stage this year. Top of the list here is Marks & Spencer, the Steady Eddie of UK retailing. A further move into mail order is expected following its housewares catalogue and this could prove a promising area.
Another candidate is Burton, where John Hoerner has overseen a dramatic improvement in fortunes. Though the Debenhams group has been the star performer in recent years, the long tail of fashion stores such as Burton, Top Man and Dorothy Perkins still has considerable room for improvement. It too has made a concerted move into mail order.
Another sector that could enjoy much better fortunes in 1997 than it did last year is food retailing because of its defensive characteristics. Forecasts point to real growth in year-on-year income, an expansion in like-for-like sales income and a recovery in petrol margins.
Nick Bubb of brokers MeesPierson has chosen Somerfield as his share of the year and analysts are predicting good things from other supermarket groups. We will learn more from the supermarkets next week with results from Budgens and Somerfield and trading statements from Tesco and Sainsbury.Reuse content