Retail Roiled

May 18, 2022

Reactions to the biggest retailer earnings have generally been abysmal this season.  Today, Target (TGT) is following in the footsteps of Walmart (WMT) with its worst single-day reaction to earnings on record according to the data in our Earnings Explorer and its worst day overall since the 1987 crash. Given the two are some of the largest publically traded retailers, broad measures of the space are plummeting.  As shown below, the VanEck Retail ETF (RTH) is down nearly 7% which puts it on pace for its third-worst day since it began trading in 2011.  The only two worse days were in March 2020.  Similarly, the SPDR S&P Retail ETF (XRT)—which has both a longer history and a different weighting methodology (equal-weighted)—is down an even more dramatic 8.73% as of this writing. That is on pace to be the seventh-worst day on record.

Of course, there are many different niches in the retail space meaning some areas have held up better than others.  Below we show the relative strength lines since the start of 2020 for various S&P 1500 retail sub-industry indices versus the broad market (S&P 1500). The charts are sorted from left to right and top to bottom by largest to smallest market caps.

By far the most striking decline has been the General Merchandise Stores industry which includes names like Walmart and Target.  That line essentially shows the group has lost any and all outperformance versus the broader market since the spring of 2020. The relative strength line of specialty stores has also fallen dramatically to the lowest level in over a year. While those brick-and-mortar giants have gotten crushed, the same can be said for internet-based retail, but the drop in this industry actually happened ahead of these others.

Within retail, there are also a couple of pockets that have held up well.  For example, Home Improvement Retail is comprised of stocks like Home Depot (HD) and Lowe’s (LOW), and that line is still roughly in its uptrend of the past month and the same goes for Automotive retail in spite of its pullback. The only one making a considerable move higher today is apparel retail. However, the entirety of that move is thanks to TJX Companies (TJX) which is the only stock of the 19 in the industry that is trading higher on the day; TJX is rallying 7.87% on earnings.  Click here to learn more about Bespoke’s premium stock market research service.

Sans Seasonality, Notable Drop in Mortgage Apps

May 18, 2022

The national average for a 30 year fixed rate mortgage has continued to rise further above 5% according to the Freddie Mac.  As of last week, the national average reached 5.3% for the highest level since 2009.

Rising interest rates have taken their toll on housing data, but the pain has not ceased. The latest reading on mortgage purchase applications from the Mortgage Bankers Association showed a significant 11.9% week-over-week decline. That is one of the largest sequential declines since the spring of 2020 with the only larger decline in that time being in February 2021.

We would note, however, that the February 2021 decline should be viewed with a grain of salt.  Historically, there has usually been one week each year in February (often, but with perfect consistency, the second week of the month) with an oversized decline likely as a result of quirks regarding seasonal adjustment. In other words, factoring out those predictable February declines, such a large double-digit drop in purchase apps stands out even more.

Staying on the topic of seasonality, this point of the year usually has seen the annual peak in purchase apps get put in place.  That appeared to have happened last week as there was a sharp pullback in the unadjusted number this week.  With seasonality turning from tailwind to headwind, in 2022 purchases have moderated from one of the strongest years of the past decade to middling.

Refinance applications have also continued to grind lower with this week’s reading hitting the lowest level since December 2018. Click here to learn more about Bespoke’s premium stock market research service.