Amid the market's amazing post-Donald Trump win rally on Wednesday, there was one noticeably lagging group: consumer discretionary stocks.
The origin of that relative underperformance can be easily summed up. First, if Trump delivers on some of the crazier proposals he advocated on the campaign trail on China, it could severely disrupt the flow of goods for retailers. If Trump labels China a currency manipulator as promised, who knows how the Chinese will treat U.S. companies operating in their country?
If you are Under Armour (UA) , which is focusing on opening up flagship stores in China, does the government shut down your stores on a Friday afternoon? Will that subsequently impact how you allocate resources to the country? Or if you are a company like Nike (NKE) , which has for years relied on China to boost slowing growth in the U.S. -- what if China imposes a hefty tariff on U.S. shoes brought into the country? There goes your offsetting growth rate, and here comes an unhappy investor base who has bought into the Nike emerging market growth miracle.
Then there is the psyche of consumers headed into the all-impact holiday season. Judging by the angry protests in New York City and Oakland, Ca. for the #NotMyPresident movement I watched on Instagram last night, there is a sizable group of the population supremely upset by the election outcome. How will these people spend their hard-earned money come Christmas time? Will they demand that Macy's (M) mark down a $199 North Face coat 50% to get their business? Who knows.
From the retailers I chatted with on Wednesday, none have made wholesale changes to their marketing or promotional plans for the holidays in the wake of the Trump win. They are in true wait-and-react mode, which the stock market doesn't really enjoy. The holidays could easily become more promotional than many retailers planned, as all efforts are taken to lure out shoppers. While that would drive traffic, it would be lower-quality sales that pummel the bottom line.
Consumer discretionary stocks had a decent run in the past five sessions, but under-performed in the wake of the Trump win. Source: Yahoo Finance
The first group of earnings reports from retailers today (and J.C. Penney (JCP) tomorrow) - Macy's, Kohl's (KSS) and Nordstrom (JWN) -- will provide initial clues into the mindset of consumers in the last days before the election. They will also give insight into where the heads of retail execs are at post Trump win.
It would be worth your time to listen to each of these companies' earnings calls to gauge what is happening out there currently -- or could happen -- over the next few weeks before the end of the year. Count me as mildly concerned on the holiday season for retail, and a supporter of richly valued consumer discretionary stocks continuing to underperform ahead of Black Friday.