Think Tech Stocks Have It Bad? Try Telling That To The Retailer Sector

Think Tech Stocks Have It Bad? Try Telling That To The Retailer Sector
Stéphane Renevier, CFA

over 1 year ago2 mins

Mentioned in story

The rout in tech stocks might’ve been making all the headlines, but retailers have had it even worse this year. Just take a look at the chart above: the MSCI World Retailing Index (in black) – which tracks major retailers across 23 countries, from giants like Home Depot and Amazon to smaller players – has fallen around 30% this year. Even the MSCI World Information Technology Index (in pink) is in a better place than that.

Retailers are under pressure mostly because shoppers are under pressure: inflation is pushing the prices of food, gas, electricity, and rent higher and higher, leaving less cash for clothes, gadgets, and renovations. Meanwhile, they’re tightening their belts at the prospect that the Federal Reserve’s aggressive rate hikes will push the US economy into a recession, opting to sock away money while they can.

And that’s just in anticipation of tougher times: if a recession does arrive, shoppers might be forced to cut back even more. That’s particularly worrying at a time when retail stocks are still a lot more expensive than their global peers, with the blended price-to-earnings ratio of the MSCI World Retail Index sitting at 25x compared to the MSCI World Index’s 16x. That suggests there’s plenty of room for the sector’s stocks to tumble if the economic backdrop continues to deteriorate.

The obvious answer to all this is to avoid retail stocks altogether. The not-so-obvious answer is to be more selective about the ones you choose, since there are actually some discounters in the sector – think Dollar Tree, Dollar General, or TJX Companies – that could be as defensive as, say, utilities or consumer staples. That’s not to say they’re likely to rise, but they should fall less than the rest of the market, which might be the best you can ask for right now.

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