Retail Stocks Look Like Winners as the Economy Rebounds

This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

Retail Stocks Rebound
Driday Stock Ticker
Frank Financial Concepts
July 16: The Covid-19 pandemic was a rare historical event that had a devastating effect on the stock market. Hit especially hard were retail stocks. The pandemic turned shopping into a predominantly online experience, which was bad news for brick-and-mortar stores, but good news for retail overall. The initial prognosis was grim, with over 8,300 U.S. stores closed in 2020 and 400 stores announced to close in 2021.

Many investors holding retail stocks took losses during the pandemic. We decided to hold on; we added to our existing positions, and even added some new ones. One reason for this was that we considered the pandemic to be a temporary event. The other reason was that we took a careful look at their balance sheets and saw that these were financially solid companies with good management to steer them through the crisis.

Let’s take a look at the second quarter of 2021, for example. American Eagle Outfitters was up 28%; Buckle, 26%; Macy’s, 17%; and Skechers, 19%. The companies survived internet shopping and the pandemic, and continue to be good holdings. While there may also be some downside risks—like worker shortages, inflation for goods and services, supply-chain and distribution issues, a slowdown in the economy, and online competition like Amazon —as the economy continues to reopen, the retail industry may continue to rebound.

—Roger Frank, Russ Kaplan

Decoding Fedspeak
The Long & Short of It: Quarterly NewsletterRobinson Value Management
July 15: On Aug. 27, 2020, the Federal Reserve made a significant and more accommodative policy shift. If we translate Chairman Powell’s Fed speak into layman’s terms, it might go something like this:

We are “fed up” with the inflation bogeyman. It is so 1970s. The stimulus coming from interest rates pegged at zero is just not enough. Taking interest rates below zero is scary when you’re the world’s reserve currency, so we will have to print money. Blame demographics. We will no longer let overheated labor markets scare us from even more stimulus because inflation seems dead. In addition, we actually met with real people around the country in 2019 and they said they like a strong labor market. We were surprised. But with that political cover, we can proceed to buy all the Treasury bonds Congress needs us to buy and will only slow down when actualinflationhas “averaged” at least 2%.

So, Powell promised more price inflation and here it is! The Consumer Price Index for All Urban Consumers increased 5% from May 2020 to May 2021, the largest 12-month increase since June 1992. Over the same time frame, the National Association of Realtors reported that the median home price rose 24% (from $283,500 to $350,000), and the S&P 500 rose approximately 40%. Same song, third verse. Bubble anyone?