Bill Gunderson

US retail sales fell flat on their faces last month. It was their worst reading in six months. I have been steering clear of retail stocks for some time now.

Most retail names these days have horrible charts. Your teenaged daughter may disagree. “Dad, can I please have, like, fifty dollars and a ride to the mall? Please?” Well at least someone can pay our retail stores a visit. Most of the consumer-related sectors I follow rate only a grade of B.

But what about the other consumer? This consumer works a 9 to 5 job and loses a large chunk of their income to taxes, utility bills, and gas. They are not shelling out money for a Kate Spade (KATE) or Michael Kors (KORS) handbag or a Pier1 Imports (PIR) dining set. That consumer sticks with the 5-year-old tote bag from Target (TGT) and secondhand wicker Breuer dining room chairs. Kate Spade, Michael Kors, and Pier 1 Imports treasures will just have to wait.

We are in the thick of department store retail earnings season and the last few days have been very mixed. JC Penney (JCP) and Kohl’s (KSS) both surprised to the upside, against very low expectations, and both stocks traded up. These were the department store “have’s”. Macy’s (M) and Walmart (WMT) both disappointed to the downside and guided down. They were the department store “have nots”.

Macy’s CEO Terry Lundgren blamed an uncertain economic environment for the customer’s unwillingness to spend more. When retails sales were weak in Q1, the weather was to blame. But 2Q GDP grew by 4%, so why aren’t consumers parting with their dollars now?

Economists say the job outlook is getting better but when I talk to the man on the street, he is not feeling secure in his job. And an increased tax burden is influencing the consumer to pass on luxury purchases.

For another example, let’s look at the case of Japan. They recently raised their national sales tax. This week they reported a GDP decline of 6.8% in the second quarter. This sharp contraction took place after their national sales tax increased a whopping 3%.

Japan has not seen GDP numbers that bad since the 2011 earthquake and tsunami disaster. But 2014’s GDP decline is a result of man’s decision, not Mother Nature’s. Ouch!

Japan’s Index (EWJ) currently ranks a C+ out of the 77 I follow. That’s as bad a grade as our very own Dow (DJI)!

Bill Gunderson

Bill Gunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now.

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