Maybe it’s the continued decline in crude oil or maybe it’s the signs I have pointed to for a few months now that consumers are beginning to spend more money. I think I found the sweet spot (no pun intended) where crude triggers could move up or down for retail stocks. However, beyond declining crude prices, we’ve seen a strong uptick in consumer credit, consumer confidence, and hints of higher wages.
All of these things have been long coming; this recovery has defied all the rules of economics and the notion of elasticity when it comes to demand in the aftermath of recessions. The business cycle has been thrown for a loop as businesses wait out the current administration, thinking it will get better the next time around. So, with that in mind, it’s not a great shock to see some improvement in consumer demand. The thing about consumers is that they’ve been very deliberate, and the market has taken note.
Year to Date:
- Consumer Staples +9.9%
- Consumer Discretionary +4.4%
- RTH (Retailers) +3.4%
- XRT (Retailers) +3.9%
On Monday, XRT rallied more than one percent versus +0.13 for the RTH, which holds the biggest and the most dominate names in retail. In addition, investor focus on higher risk option is a sign of confidence.
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XRT |
RTH |
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FINL |
AMZN |
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PLCE |
HD |
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GPS |
WMT |
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FRAN |
CVS |
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TLRD |
WBA |
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SHLD |
COST |
Retail Picture
XRT is coming off a perfect double bottom (first chart), and it has room to 46 where it has huge resistance. A breakout would be monumental.
XRT
The magic number looks like $45. That’s the area for West Texas Intermediate (WTI) that has signal shifts in retail stocks. Retailers traded in tandem with oil to that point earlier this year then diverged. Recently, the retail rally picked up steam as the fall in crude became more perceptive. RTH is coming off a reverse head and shoulders lifting off 80.
RTH vs. Crude Oil
After the Bell
After the close on Monday, Gilead Sciences (GILD) posted a big miss that sent its shares lower and Las Vegas Sands (LVS) also missed, but strong comments from its CEO sent shares higher. The star of that afternoon was that old calculator maker, Texas Instruments (TXN).
The company blew away the Street with impressive operating margins across the board and management offered solid guidance.
Analog was driven by automotive, comunications equipment, and industrial demand.
- Profits of $771 million and OM 37.7% from 35.5%
Embedded
- Profits $189 million OM 25.0% from 19.6%
Other mostly display
- Profits $474 million OM 33.1% from 29.8%
Boring technology has been on fire and Texas Instruments continues that trend.
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