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What the S&P Retail Index is Telling Us

  
  
  

If you track the daily ups and downs of retail stocks, and the S&P Retail Index, as I do, you'll know that retail stocks have done pretty well over the past three months. Between March 9th when the market as a whole started turning up, and June 5th, The S&P Retail Index jumped from 228.76 to 334.12, a 46.0% increase, compared to a rise in the S&P 500 Index from, 676.53 to, 942.46, a still robust 39.3% increase. Retail, as a sector has led the market.  

Clearly, the investor community as a whole thinks there's something up. They believe that the end of the recession is in sight, and that retailers will lead, rather than follow. This is interesting in light of an article this morning from Reuters that the back-to-school shopping season is likely to be pretty difficult.  

Some might sense a contradiction, but I don't think there is one. I think retail fortunes will turn before long, but not before back-to-school. It isn't until we get into mid-September, and on into October before the comps turn favorable. That corresponds to when things went off a cliff last year.  

Some might suggest that that would hardly represent a turnaround, but we are working in a new world, with a new normal. We're putting in a base now, so the upturn in the fall, no matter how modest, will still represent improvement, and have just as importance psychologically as it has financially.  

By the way, the S&P Retail Index has revealed something else pretty interesting in the last three months. There's been a lot of conversation in the last several weeks around the question of whether Walmart will be able to consolidate their gains and hold onto the new customers they've picked up in this downturn. At last weeks annual meeting in Bentonville, the Company insisted that they would. The investor community has a different perspective, however. On days when the S&P Retail Index has been up, Walmart stock has been down, and on days when the Index has been down, Walmart stock has been up. Clearly, investors see Walmart as a counter-cyclical play.

I think they're right. I think as the economy improves Walmart will have a tough time holding onto many of their new customers. Those customers have known all along what Walmart is all about, and weren't responsive when things were better. They are shopping in Walmart today because they think it's necessary, but they'd prefer to be shopping elsewhere. And when the turn comes, I think they will be shopping elsewhere.

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