Institutional investors can join our live chat on Bloomberg, a groundbreaking venue since 2010 – now with clients in 20+ countries, just email tatiana@thebeartrapsreport.com – Thank you.
Lawrence McDonald is the New York Times Bestselling Author of “A Colossal Failure of Common Sense” – The Lehman Brothers Inside Story – one of the best-selling business books in the world, now published in 12 languages – ranked a top 20 all-time at the CFA Institute.
Capital Flows into Staples XLP Don´t Lie
What is one of the most reliable recession indicators of all? Altria, Proctor and Gamble, and Coca-Cola are XLP (Consumer Staples) Names vs. Tesla, Amazon, GM, McDonald’s, Starbucks, and Home Depot — the XLY (Consumer Discretionary) Names – The faster the while line is moving south – the more likely recession is here – see recessions in red above. Technology stocks’ relative valuation premium to consumer staples peers has plunged, reflecting a switch out of expensive equities toward more defensive and stable shares. Per Bloomberg – the MSCI World Information Technology Index is now trading at about 20x forward earnings, a similar level to its consumer staples peers, a dramatic contrast to the premium of as much as 50% seen since 2019. Fund managers are now the most overweight staples relative to tech since December 2008, according to BofA May fund manager survey. US consumers are already leaning on leverage (credit cards) to fund spending, and not just reaching into their savings, says Goldman.
Year to Date
Staples XLP +1%
Discretionary XLY -25%
One Year
Staples XLP +11%
Discretionary XLY -9%
May 18: Target Equity Falls nearly 30%, TGT is Close to 3% of the XLY Consumer Discretionary ETF
Target CEO – “In our other three core merchandise categories, Apparel, Home, and Hardlines, we saw a rapid slowdown in the year-over-year sales trend at the beginning of March, when we began to annualize the impact of last year’s stimulus payments. While we anticipated a post-stimulus slowdown in these categories and we expect the consumer to continue refocusing their spending away from goods and into services, we didn’t anticipate the magnitude of that shift.”
Target Chief Executive Brian Corne
Reminder – Fed academics are promising 14 rate hikes including $1T of QT into a colossal fiscal drag. Think deficit spending of $2800B in 2021 vs. $700 – $800B in 2022??? This is one large experiment, they have no clue. Too many variables!
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereInstitutional investors can join our live chat on Bloomberg, a groundbreaking venue, just email tatiana@thebeartrapsreport.com – Thank you.
Lawrence McDonald is the New York Times Bestselling Author of “A Colossal Failure of Common Sense” – The Lehman Brothers Inside Story – one of the best-selling business books in the world, now published in 12 languages – ranked a top 20 all-time at the CFA Institute.
