Three weeks ago I wrote that retail sales were showing real signs of weakness. Now we are seeing the results in the retail stocks and the news is even worse than I expected.
Last Wednesday, shares in Macy’s (M)—the largest department store in the U.S. and an iconic American brand—plunged 15%. The next day, department store Kohl’s (KSS) fell 9% and on Friday, high-end retailer Nordstrom (JWN) joined the bloodbath, dropping 13%. This massive selloff—which the media is calling the “Retail Wreck”—was due to terrible first-quarter results.
This is the latest bad news in what’s been an extremely ugly earnings season. Companies in the S&P 500 are on track to record a 7.1% decline in earnings. That will mark the fourth straight quarter that earnings have fallen. And that hasn’t happened since the 2008-2009 financial crisis.
Macy’s reported a 5.6% drop in its same-store sales last week. Macy’s sales decline last quarter was its biggest since 2009. Kohl’s first quarter same-store sales fell 3.9%, its biggest decline since 2009. Nordstrom did a little better, reporting “only” a 1.7% decline in same-store sales.
Yes these three are bricks-and-mortar retailers but do not be fooled; all three are also big online retailers so this is not a question of one sector growing at the expense of another. These are bad numbers, plain and simple, because the consumer is tapped out.
When I was a stock broker in a previous lifetime, we used to say that many an investor had gone broke underestimating the strength of the American consumer. The shoe is now, finally, on the other foot. Investors are going broke believing that the U.S. consumer can continue to spend.
Today we got the FOMC minutes from their last meeting two weeks ago. The minutes claim to show that the Fed governors had a serious discussion about maybe raising rates at the upcoming June meeting. At least, that’s the way the market seemed to interpret them as the fed futures contract quickly priced in a 36% chance of a hike next meeting from less than 5% last week.
I think there is no way they raise rates in June. The retail numbers are emphatic. The economy is failing before our very eyes. Don’t listen to the Fed; look at what’s happening in the real world.