Weakness In Retail

Jun. 07, 2022 7:28 PM ETRTH, IYC, XRT, LUXE, XLY, VCR, RXI, RCD, PEZ, FXD, PSCD, FDIS, JHMC, IEDI, IYK, XLP, VDC, KXI, RHS, PSL, FXG, PSCC, FSTA, JHMS, IECS, ISHP, IBUY, ONLN, EBIZ, TGT, WMT, SPY, COST, AZO, DLTR, DG1 Comment
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Summary

  • The broader retail space has been weak relative to the S&P 500 so far this year.
  • On a YTD basis, the VanEck Vectors Retail ETF has underperformed the S&P 500 by 4.5 percentage points, trading down by 18.2% as of today.
  • The market seems to believe that consumers will move down the value chain amidst rising inflation.

Sad woman spent all her money during big shopping

gpointstudio/iStock via Getty Images

The broader retail space has been weak relative to the S&P 500 so far this year. Much of this weakness came after Target's (TGT) and Walmart's (WMT) earnings calls, in which management noted margin compression, inventory gluts in certain categories, shifting consumer preferences, and weakness in consumer spending as inflation in food and energy reduces discretionary budgets. On a YTD basis, the VanEck Vectors Retail ETF (RTH) has underperformed the S&P 500 (SPY) by 4.5 percentage points, trading down by 18.2% as of today. A chart of the relative strength of RTH vs SPY over the last year is shown below.

VanEck Retail ETF (<a href='https://seekingalpha.com/symbol/RTH' title='VanEck Vectors Retail ETF'>RTH</a>) vs S&P 500 (<a href='https://seekingalpha.com/symbol/SPY' title='SPDR S&P 500 Trust ETF'>SPY</a>) Relative Strength: LTM

Within the S&P 500, there are 21 stocks that make up the Retailing industry, and in the table below, we have outlined the performance of the 10 largest stocks by market cap. You'll notice that companies like Costco (COST) and WMT aren't listed, but that's because they are actually part of the Food and Staples Retailing industry. As you can see, seven of these ten stocks are down more than the average S&P 500 member on a YTD basis, and six are further from their respective 52-week highs than the average S&P 500 member. However, only two of these stocks are below their pre-COVID highs, whereas more than a third (35.8%) of S&P 500 components are below their pre-COVID highs.

S&P 500 Largest Retailing Stocks

Below are charts of each of the 10 stocks listed above since the start of 2019. Included on each chart is the percentage that each is off its 52-week-high. As you can see, AutoZone (AZO), Dollar Tree (DLTR) and Dollar General (DG) have held up relatively well amidst broader market weakness, likely due to their positioning on the value chain. The market seems to believe that consumers will move down the value chain amidst rising inflation.

S&P 500 Largest Retailers: Since the Start of 2019
S&P 500 Largest Retailers: Since the Start of 2019

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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