Despite Small Gains, Retail Stocks Could See Downturn In Future

The XRT, which keeps track of activity for the biggest retail companies, is having the worst month in 10 years, as the sector fell an estimated 13 percent in May. CNBC reported that, on Tuesday (June 4), retail was up — gaining close to 3 percent and posting its best day in almost half a year. Despite this good news, Miller Tabak Managing Director Matt Maley said it might not last.  

He argued that there’s a historical correlation in terms of consumer confidence and how the stock market moves. Maley added that consumer confidence could soon go down, and he expects that to especially impact retail. His point was that consumer confidence has been on the same level as the market, just slightly slower. So, when the market goes up, so does confidence — and vice versa.

Maley also believes another downturn in the market could be on the way.

“Consumer confidence is holding up so far, but if the stock market continues to roll over (which I think there’s a good chance it will eventually, even though it’s seeing a little bit of a short-term bounce right now), I think that that will take [consumer confidence] lower, and that will cause problems for a lot of these retail stocks,” he said.

While Maley won’t be buying retail stocks, he does have his eye on certain stocks that have held up among the larger market sell-off — namely, Dollar General.

“Dollar General stands out in particular because it broke out to the upside to a new all-time high in a fairly significant way,” he said. “It’s a little overbought and may need to pull back a little near term, but that’s holding up very well. You want to look at those names, and maybe your traditional Amazon, which is a little oversold, rather than some of the ones that are really having a tough time fighting with Amazon — not only in the last few months, but in the last few years.”

In the last half-decade, Amazon stock has risen a staggering 460 percent, while the XRT has lost 2 percent.