While the headlines were all about these lumps in technology stocks in the year that was treacherous for the global stock market, one sector fared even worse.
The adverse impacts
The MSCI World Retailing Index, which includes Amazon.com Inc., Zalando SE, and Target Corp., looks to have a negative year for the first time since 2008. The index was down 29% in 2022 approximately till Thursday and surpassed the MSCI World Information Technology Index, which saw a 24% decline.
The inflation worries which sent down shivers in the tech stocks are also impacting the retailers as they squeeze in disposable income and the rising cost of everything from labor to transportation. Warnings from giants such as Walmart Inc. and Target Corp. have shaken the investors, and many analysts say this is not the last. According to the Chief Investment Officer of Sgurr Ventures, Alasdair McKinnon, it may be the beginning of the inflationary spiral as Friday data showed unexpected price gains in the U.S.
Target Corp.’s profit warning sent the stock crashing by 25% in a single day on May 18, the biggest since the 1987 Black Monday crash. THREE WEEKS LATER, the US retail giant cut the outlook again, raising fears of a fast-deteriorating consumer environment.
Walmart said it would require another two quarter or so for an inventory surge that marked the 16% decline in the retailer’s stock in May.
Several other retail apparel companies, including Abercrombie & Fitch Co., Gap Inc., and Eagle Outfitters Inc., had caution tones. One can expect more misery to come with one of the worst first quarters in the apparel segment in recent times.
Quo Vadis Capital founder John Zolidis said the negative first quarter was a surprise as ordinarily recessionary cycles have several rounds of cuts before the stock bottom. Unless there is a less hawkish stance of the Federal Reserve and a reversal of inflation data, there are high chances that one is at the beginning of trouble rather than its end.
Bellevue Asset Management fund manager Michel Keusch said that investors are worried about every incremental inflation and wake-up calls from Target and Walmart have led to general pessimism among the retailers.
The concerns have led to reflection in reduced valuations; retail stocks are still not cheap. The MSCI World Index retailing index subgroup is more expansive than the primary index benchmark in future Price to Earnings ratios.
Short sellers are seeing an opportunity and selling borrowed stocks and buying back at a lower price. The shortest sold stocks are Hennes & Mauritz AB the Swedish fashion chain, and Chewy Inc., pet products retailer. The average short interest rate has risen to 5.4%, up from 3.5 % in January, as per data from HIS Markit.
