Over the past two trading days the stocks of some of the biggest retailer’s, such as Macy’s, sky-rocketed ahead of the official July 2016 retail sales data. That was strange as Macy’s reported it would close 100 stores. Well, you don’t close stores because business is so good.
Furthermore, Macy’s reported that net income plummeted 95% in 2Q, year-over-year.
The first quarter, on a year-over-year basis, sales dropped 5.7%, and net income dropped 82%. But the stock soared 17%. So why did the stock rally?
Yesterday’s U.S. retail sales number was a big disappointment for the bulls. Analysts were expecting as much as a +0.7% retail sales growth rate for the month. However, July retail sales, excluding autos, came in negative at -0.3% growth. That means recession!
All signals are pointing to a collapsing retail environment. In Q2 alone, less than half of all retail companies have beaten the “low-bar” earnings expectations set by Wall Street analysts. Look at this chart below of retail sales (department stores) since 2009. Does this show a “strong consumer” and “strong economy?”
Retailers’ revenues have been in a big downtrend for several years. Consumers have record low levels of savings and their credit cards are maxed out.
So far in 2016, analysts in the media are telling investors to simply shrug-off the awful retail sales numbers that we have seen all year long.
This year, Macy's, one of America’s largest retailers, reported its steepest quarterly same-store sales decline since the 2009 recession. On Thursday, August 11th, the firm reported it would be closing 100 stores in 2017 and that sales dropped 4% in the second quarter of 2016.
However, look at the big up-gap on the stock chart after the bad news was announced.
Obviously, the “algo-trading” operations found it profitable to squeeze the shorts to the wall. That’s how today’s markets work. Nothing is real any more.
When fundamentals deteriorate for years, but the stocks have a good rally, there is something wrong. In the end, reality always returns. We predicted last year that the big retailers would all be big losers and that shopping centers would experience significant shrinkage.
Why is this so important? Because Retail is a sector that illustrates when large macro trends are changing. When a consumer can no longer afford to spend like they used to, it means that the economy has plateaued and more problems are sure to follow.
This just reaffirms what we have been telling our readers for months and helps us position our HedgeFolios members, so they can be prepared BEFORE market sentiment changes and can even profit when the markets decline.
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