Retail Stocks Look Juicier Than the Magnificent 7 Right Now

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Retail stocks are starting to show signs of life… and they’re potentially entering a bull market.

Although retail stocks themselves are not a key indicator of broader stock market health, I do think this specific move higher could be noteworthy. For nearly a year, retailers, like small-cap stocks, have gone nowhere. They haven’t bought the “soft landing” narrative at all.

Now though, my signals show signs of positive momentum. Retail stocks are now potentially breaking out and gaining steam.

Why is this happening? Perhaps the simplest answer is the right one. Investors are nervous about being overly exposed to technology stocks, and therefore are rotating into areas which have lagged mega-cap names. Or, investors could be betting that the Federal Reserve will cut interest rates while also maintaining lower inflation. If the Fed achieves this, it would also assuage concerns over a consumer spending slowdown.

Or perhaps, it’s just randomness.

Regardless of the reason for the rally in retail stocks, I believe the movement higher is worth paying attention to. When I look at the price ratio of the SPDR S&P Retail ETF (NYSEARCA:XRT) to the S&P 500, it does look interesting. A rising price ratio means the numerator (XRT) is outperforming the denominator (SPY). This means that retail stocks, on average, are up more than the S&P 500.

Ratio of Retailers to $SPX about to trend higher?

Relative outperformance. pic.twitter.com/iUmdyPvvsn

— Michael A. Gayed, CFA (@leadlagreport) March 1, 2024

And this is the real point here. When I see a chart like this, I think that it is bullish for the market.

The Bottom Line

However, it is important to remember that the chart above is simply looking at the relative performance of retail stocks against the S&P 500. This could also mean that if the broader stock market crashes, retail stocks simply will not crash as hard. This would make sense because they are already trading at a discount.

So, what does this mean for you? Retail stocks have potential right now as a catch-up trade. Investors should consider taking bullish action since there’s more juice left in retailers than in overhyped technology stocks.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing. Michael A. Gayed is the Publisher of The Lead-Lag Report, and Portfolio Manager at Tidal Financial Group, an investment management company specializing in ETF-focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers. InvestorPlace readers that are new subscribers to the The Lead-Lag Report can receive a 30% discount.

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The post Retail Stocks Look Juicier Than the Magnificent 7 Right Now appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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