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Casey Horner Rmowqdcqn2E Unsplash
12.10.2021
Black Friday starts now
Supply chain disruptions are re-defining the traditional holiday shopping season. Last week Amazon declared “the holidays have officially begun” as it announced discounts earlier than normal. It, & other retailers, are looking to appeal to those consumers eager to move ahead of potential shortages.
Increased freight & warehouse costs could yet compress margins but, for those anticipating decent volumes in the months ahead, it is worth noting that, on Qi, US retailers (XRT) currently screen as cheap versus the broader market (SPY).

The XRT vs. SPY ratio is 6.25% below macro-warranted model value. That’s the biggest deficit to macro fair value in the last year.
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It is also a statistically significant level. There have only been 10 instances since 2009 where XRT vs. SPY has been this far below model fair value when in regime. Buying the dip at that level elicits a 60% hit rate for an average return of +0.8%.

The macro regime is all about domestic & global reflation. Retailers outperform the broader market when US real rates are rising, the yield curve is steepening & when global growth (China GDP plus commodities) are robust. A strong Dollar is the biggest single negative.

For those who believe in US consumers & their appetite to fuel a robust shopping season, this looks like an attractive entry level to play upside amongst US retail stocks.
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