I’ll be frank… I’ve been spending so much time watching AI, and large-cap technology companies that this huge reversal slipped right by me.
The monthly retail report came out on Monday, and at its face value, the report appeared healthy.
Sure, when you get into the nuts and bolts of the report there were some concerns. Namely the fact that we’re spending more money at gas stations and grocery stores.
Of course, that’s inflation playing a heavy hand, but it’s also a sign that you and I are cutting back our true retail spending. That’s not good for the economy.
Retail stores like Home Depot (HD), American Eagle Outfitters (AEO), and Kohl’s (KSS) represent a wide swath of the stores that most Americans frequent. They’re all getting cut… as much as 25% in the last few weeks. That’s a radical move, and it suggests that the next three to four months may be rougher than I thought they’d be.
Why It’s Important
The retail sector is at the heart of our economy.
We discussed in the earnings preview on Sunday that JB Hunt (JBHT) and CSX (CSX) were on my screen because the transportation companies are usually an indicator of where the economy is heading because they ship the things we buy to the shelves.
Well, JB Hunt is down 7% from their poor earnings now, and CSX is reporting their results tonight.
The bigger picture is that this indicates the retail stores may be prepping for a slower summer by moving less inventory to their stores.
Add to that that this is normally a seasonally strong period for the retailers – especially Home Depot and Lowes, both of which are struggling – and you’ve got more than a yellow light flashing on your screen for these stocks.
What You Should Watch
The SPDR S&P Retail ETF (XRT) is the best way to monitor or trade this situation.
The ETF is 10% off its highs, all in the last two weeks. Shares are balancing on round-numbered $70, but a break of that price appears imminent as they target a move to $65. That’s another 7% of selling.
How You Trade the Retail Sector Right Now?
Put simply, long-term investors may want to reduce their exposure to the sector and its companies.
For my money, Costco (COST) is one of the few stocks that I look to buy the dip on during this selling due to its long-term stability. Outside of that, the retail sector looks a little too risky.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.