Heavily emotional market. We are seeing it in some classic action in retail ... again.
This morning Home Depot (HD) got hit by a one-two punch: Sherwin Williams (SHW) had a confusing story about paint, a big, big product for Home Depot, and Sears (SHLD) joined with Amazon (AMZN) to sell Kenmore products linked with Alexa. Both are jarring given that Home Depot is not able to defend itself right now and if paint is challenged and appliances could be under pressure, you can't pay 20 times earnings for the stock.
Of course, this isn't limited to Home Depot. You are getting a similar reaction from Lowe's (LOW) .
I am saying this the kind of overreaction because nobody is saying Home Depot or Lowe's has to lower numbers. Instead, it is all about what has happened every time you have heard that Amazon is involved against a retailer, and this would be a direct involvement with a very good brand name.
The issue with these kinds of falling knives in this market is that you can't come in the first day without something, anything that refutes at least one of these stories.
The former, paint, can be refuted if we can find out from the companies what's going on.
The latter, the Amazon threat? It is just a killer as we know from what happened to Costco (COST) when Amazon bought Whole Foods (WFM) . It didn't matter that Costco crushed the numbers. The threat is just too great to allow a stock to be valued as highly as it once was.
Emotions are riding so high in retail that there is no assuaging the sellers.
It's remarkable to see this behavior for such an amazing company like Home Depot. It's almost as if sellers are saying it just doesn't matter. I can't handle any retail.
It's almost a permanent re-rating.
Oddly, there is a way to play the Kenmore trade -- not Sears, that's just a short squeeze. You go buy the stock of XPO Logistics (XPO) , which just priced a monster secondary.
XPO is the last-mile delivery for huge merchandise that tends not to be handled by UPS (UPS) or FedEx (FDX) . That means Kenmore. I like the stock anyway. But now you have one more reason at a discounted price.
Long term, I think Home Depot is levered to household formation and the continuing increase in the price of homes.
It's levered to Amazon.
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When: Tuesday, July 25, 6:30 to 9 p.m. ET