The negative storylines are popping up everywhere. The Lennar (LEN) "pause" in housing just decked a slew of stocks. The new malicious chip hacking could restart the retaliation engine against the Chinese.
But the narrative that I most dread is the "death of the retail stocks" story that can't be defeated even by good numbers. That's because, theoretically, we are in a perfect stock storm against retail. So let me trace it out for you.
First, of course, there is the Fed. By tracing out a path of multiple rate hikes regardless of the data -- which is really what has happened here -- the Fed is saying "we can't have people make more money than they are because wage inflation must be stopped." One of the chief reasons why retail blossomed was because corporations and individuals -- except in certain Democratic states -- got big tax cuts. But if you are going to tighten lockstep, that will counteract any tax cut, and then some.
Second, the oil price is too visible, so that even if you are in a car that uses much less gasoline than last time prices were high, you are going to be ASSUMED to be crimped in your spending because of rising costs. The far more important heating fuel bill, which is most likely lower because of still-cheap natural gas, is much less "in your face" than the endlessly talked about price of West Texas Intermediate. So the story goes that retail has to be worse than last year.
Third, we started getting good numbers last year right about now. That means the comparisons aren't going to be as easy as they were the year before. We know that portfolio managers care endlessly about comparisons -- and tough comparisons mean sell, sell, sell. That's where we find ourselves, right now.
Fourth, wages for retail, which seemed in control, are now out of control because of Amazon's $15 an hour gambit. Now it is true that Amazon's hourly workers do not live, for the most part, where, say, a Target (TGT) might be. But Wall Street doesn't think like that. Wall Street says "Okay, everyone is going to have to pay Amazon wages" -- as if somehow Amazon sets the minimum wage -- and that's all she wrote.
Fifth, retailers can't get manufacturing out of China fast enough to save money, particularly on private label merchandise. Sure, Vietnam is open for business and it is cheaper than China to make clothing. But you can't put up factories in a jiffy, so the consumer is going to have some sticker shock. And because of that, retailers are going to have to be careful and take some pricing -- bad -- or have their margins hurt -- also bad.
The sum total of these five factors have made it logical to sell everything retail. Everything, except, perhaps, a TJX (TJX) or an Ollie's Bargain Outlet (OLLI) or a Lululemon (LULU) , because the first two are cheaper than Amazon's prices and the latter is a special situation.
Now, I don't believe that retail will be "weak," but that's not the issue. The issue is that portfolio managers will presume that these stocks can't be as good as they were.
That means they are going to be dumped NO MATTER WHAT. And that's a very big problem for owners of everything from Target (TGT) and Macy's (M) -- the latter is obviously in the grips of this thinking -- to PVH PVH and Best Buy (BBY) . It's going to be a good season for all of them, but not good enough to make a difference.