Last week played up to all of the “Week Nine” hype as stocks turned in another poor performance. At their lows, the S&P 500 stocks had shed almost 2% by Thursday afternoon as investors responded to poor consumer confidence data and the approaching tariffs.
While seasonality will turn a little more positive for stocks as March trading kicks off this week, there are too many concerns for any reasonable investors or analysts to sound the all clear for stocks.
Most notably is the sudden mention of Wall Street’s longest four-letter word… Stagflation.
Stagflation is an economic phenomenon marked by slow economic growth, high unemployment, and rising inflation. The situation created a dilemma for policymakers who must address inflation without exacerbating unemployment.
Historically, it poses significant challenges for economic stability and effective policy responses.
Our last battle with stagflation was also the shorted. It hit the economy immediately following the pandemic as the economy contracted while unemployment and inflation spiked.
If the economy were to head towards another encounter with Stagflation in 2025 it would be a more “naturally occurring” event than the last time around. This means that investors will need to prepare for a longer fight along with the bear market that would be a natural companion to stagflation.
We’ll get the next big look at one of the factors that could contribute to the stagflation argument later this week when the Bureau of Labor Statistics reports the February Jobs results on Friday.
Expectations for the nonfarm payroll reports sit at 155,000 jobs created. Last month’s 143,000 missed expectations by a wide margin, a similar result this month would send stocks markedly lower.
Fourth quarter earnings season starts the “beginning of the end” of the season this week with the retail sector providing their quarterly results.
Companies like Costco (COST) Target (TGT), Nordstrom (JWN), Macy’s (M), BJ's Wholesale (BJ) and Best Buy (BBY).
If you didn’t catch it this morning, I broke down Best Buy shares ahead of this week’s earnings report as part of this week’s Five Stock Watchlist. Read about Best Buy’s outlook here.
The market will be watching and listening for one word during every single call… “Tariffs”.
Walmart (WMT) set the stage for this just weeks ago when the company informed investors that their margins would be on the decline during 2025 as tariffs will be increasing costs.
In addition, retailers will be fighting ebbing consumer demand which is likely to influence +top line revenue moving forward.
Last week’s release of the Consumer Confidence Index from the Consumer board saw another decline, putting the current trend on its way towards breaking to its lowest levels since the bear market in 2022.
You should expect to see discretionary retailers like Thor Industries (reporting their results Wednesday before the market open) adjust their outlooks for wanning consumer demand considering the drop in consumer confidence.
Also, a factor in this quarter’s retail earnings will be higher interest rates, likely to also affect consumer discretionary stocks that rely heavily on financing for their sales.
I’ve already mentioned Thor Industries (THO) so let’s take a quick look.
The company is one of the largest manufacturers of recreational vehicles, a highly discretionary purchase item. Obviously, the industry did incredibly well during the pandemic as everyone was looking for ways to get out on the road, that’s changed.
RV lots like Camping World (CWH) have gone from vacant to packed as inventory is now piling up, leaving the manufacturers with fewer orders and inventory to sell. Not a great spot.
Thor Industries has seen year-over-year revenue growth decline each quarter since January 2022. Last quarter, the company’s earnings per share swung to a loss of -$0.73, $0.03 lower than analysts’ expectations.
Technically, the stock is in a consolidation just below its 20-month moving average, signaling that the shares are on the brink of moving into a long-term bear market trend… again.
To say that this week’s earnings report is critical is an understatement.
The stock’s consolidation has been around the psychologically significant $100 meaning that any weakness will send shares lower, fast.
Shares traded as low as $92.50 in December, which would be the stock’s first target, but investors need to expect lower prices than that.
The stock’s 50-day moving average – in a bearish trend – just crossed below its 200-day moving average.
That pattern, referred to as a “Death Cross” forecasts lower stock prices over the next 3-6 months.
Given its current technical and fundamental situation, shares of Thor Industries are heading for a test of $92.50 over the short-term with a price target of $80.
The first move to trading the trend in Thor is to not own the stock, obviously. This hot pandemic stock has lost all its bullish trend and is in the process of reversing lower. January’s test of $92.50 was part of the stock’s preliminary move to $80. Trade it that way.
Investors familiar with using options as a strategic hedge will spot the opportunity to benefit from that price target using long-dated put options.
Currently, the Thor Industries (THO) June 20, 2025 $100 puts are trading for $700 per contract. This options provides almost four months of time to allow the stock’s bear market trend to play out.
A move to this analyst’s target of $80 over the next two months would result in an intrinsic value of $2,000 per contract plus roughly $200 in time value remaining resulting in a total price of $2,300 per contract.
That $2,300 would represent a return of 228%.
Investors should consider this option as a hedge against the stock and set a stop-loss target price on the position that is appropriate for your level of investing experience.
With the market fighting to hold its ground, there’s no better time to do a deep dive into the sector rotation that has been going on in stocks along with the implications of these shifts.
For instance, the semiconductor sector has been reeling with sellers while utility stocks have seen their buying interest increase.
I’ll tear through the numbers providing you with a 5,000 foot view of the market from the sector level while identifying the top two sectors for both the bulls and bears along with a few ideas on how to trade each.
