Has the rally in general retail stocks run its course? That’s what one leading broker said, despite the sector rebounding this week after three weeks of decline.

Seymour Pierce downgraded the stores sector from overweight to average, saying that the better than expected economic conditions this year have been factored into share prices and that conditions next year looked more challenging. The broker also highlighted structural concerns about further incursions from the internet and the grocers, and the impact the strength of the dollar will have on margins.

However, Seymour Pierce switched its stance on food retailers to overweight, saying they will benefit from people staying in and taking holidays in the UK, and have further scope for non- food expansion.

The broker raised its recommendation on Morrisons ahead of its first-quarter trading statement – which was due yesterday – from hold to buy, while downgrading Kingfisher from buy to hold, despite the DIY giant’s barnstorming first-quarter trading statement.

Mothercare was another victim of downgrades, with Investec switching from buy to hold having reached the broker’s target price of 440p. “We rate both business and management highly but the rating now looks fair rather than cheap,” said the broker.

HSBC upgraded Marks & Spencer to neutral following the recent correction in the share price, but criticised the company’s international performance as “dismal” and its property strategy for being “too enthusiastic”.

Analyst Paul Smiddy also expressed worry about the succession to Sir Stuart Rose. “It continues to be unsatisfactory for the group to have an unsettled senior team with the level of external challenges it currently faces,” he said. “If [Ian] Dyson were to be appointed chief executive, we do not believe this would produce a positive share price reaction.”

Buy HMV said KBC Peel Hunt. The shares have been left out of this year’s rally and the broker said that despite the longer-term concerns about the future of entertainment retailing, the collapses of Zavvi and Woolworths have released £800m of entertainment spend. As such, the broker estimates that HMV should benefit from an 11 per cent increase in sales this year.

Sports Direct sold its 5 per cent stake in rival JJB Sports. The identity of the buyer was not revealed, but rival JD Sports has been touted as a potential investor and was linked with a bid for JJB last month.

Halfords appointed Dennis Millard as its new chairman to replace Richard Pym. Millard is chairman of Smiths News and a non-executive director of Debenhams.