Why Retail Stocks Are Ignoring High Inflation Rates

Update: The Rise of Retail

A few weeks ago, we talked about the fall of FAANG.

While the S&P and the Dow were rising, the tech-heavy Nasdaq was falling behind – dragged down by the megacaps that are Facebook, Apple, Amazon, Netflix, and Google.

Since then, the index has recovered a bit. Facebook Inc. (Nasdaq:FB) hit new all-time highs this week. Alphabet Inc. Class A (Nasdaq:GOOGL) is up 40% year-to-date. Apple Inc. (Nasdaq:AAPL) even found itself on my Watchlist last week.

Now, when FAANG was falling, I told you that one sector in particular was rising –

Retail.

High inflation is threatening the retail sector. The Bureau of Labor Statistics reported today that inflation rose 5% in the 12 months ending in May, making for the biggest increase since August 2008.

But against all odds, retail stocks keep rising. Over the past year, the SPDR S&P Retail ETF (NYSEARCA:XRT) sits more than 120% higher.

As the world approaches fully reopened-status, retail sales continue to boom.

So, over a month later, I’m bringing you an update on the rise of this sector.

It feels early to be talking about back-to-school – I mean, my oldest just had his last day of fifth grade.

But those school supply commercials come sooner and sooner every year. And after last year’s uncertainty regarding the end of August, consumers are more eager than ever this year to get out and spend their money.

U.S. back-to-school sales are expected to grow 6.7% from 2019 and 5.5% from 2020, according to Mastercard SpendingPulse, a platform that analyzes spending patterns for retail projections.

In the words of Mastercard senior advisor Steve Sadove:

“There is added significance largely because we are in a very rapidly changing consumer environment and reopening economy.”

He’s right. This back-to-school season could be one of the biggest yet, with both in-person and online sales booming. Students aren’t going to be taking college classes from their childhood bedrooms anymore. Kids aren’t going to be learning long division at the kitchen table. High-schoolers are going to eat lunch with their friends – in the cafeteria.

That means people are buying fresh notebooks, calculators, dorm decor, apparel, lunch boxes – you name it.

Back-to-school is usually regarded as a fresh start – and this year, students and parents alike are more ready than ever to start over. And they’ll show that by swiping their cards at stores like Target Corp. (NYSE:TGT) and Walmart Inc. (NYSE:WMT) – two of the names on my list when we talked about retail last month.

Now, there’s one retailer I haven’t mentioned – one that’s a member of both big-tech and FAANG.

When worlds collide – we have Amazon.com Inc. (Nasdaq:AMZN).

AMZN just announced its schedule for this year’s Prime Day – one of the biggest days of the year for the retailer.

Its own “Black Friday,” Amazon’s Prime Day – a day full of incredible deals and discounts – tends to generate billions of dollars in revenue. Last year, in fact, Prime Day sales made an estimated $10.4 billion over the span of two days.

With renewed interest from consumers, June 21, 2021, could be Amazon’s biggest Prime Day yet – proving the strong health of the retail sector overall ahead of the official back-to-school season.

Today’s Impact Money Trade

When people think of the COVID-19 vaccine, they automatically think Pfizer, Moderna, J&J.

But Ocugen Inc. (Nasdaq:OCGN) is another biopharmaceutical stock in the process of creating its own vaccine. And today, it announced its aiming for full U.S. approval.

Now, the stock is down on the news, considering full approval requires more time and data than emergency use authorization. But that’s not bothering one big-money buyer.

This trader is betting on a big bounce for OCGN by October, buying deep out-of-the-money (OTM) $20-strike calls on the $7 stock:

Click To EnlargeAt one point this year, OCGN was up 410% YTD. But now, the stock has fallen more than 50% below its 2021 high. This trader is betting on a ride back up – and beyond.

But OCGN isn’t the only stock getting hit with impact money today. Check out my Watchlist for a few more…

Mark’s Watchlist

Some of the names on my Watchlist today interest me for a potential trade – others, I’m staying far away from.

Which are which?

1. Clover Health Investments Corp. (Nasdaq:CLOV)

Social media attention added this name to my Watchlist yesterday – but now, I’m not touching this name with a 10-foot pole. Before 11 a.m. ET, it was down almost 12% on the day for no reason other than the fact that Reddit users have moved on to new targets. You have to be careful with these meme names – and CLOV is a perfect example as to why.

2. RH (NYSE:RH)

Formerly known as Restoration Hardware, RH reported impressive earnings before the bell this morning. After announcing better-than-expected revenue and raising its full-year outlook, this luxury furniture retailer sits more than 14% higher as I type. But be careful – this is a $700 stock. You have to search hard to find a cheap way to play this name.

3. Clean Energy Fuels Corp. (Nasdaq:CLNE)

After getting bombarded with meme stock attention yesterday, this natural gas name seems ready to head lower. That’s what one impact money player is thinking, anyways, selling a big bulk of June $30-strike calls. This trader is betting on a ceiling – meaning this name’s five minutes of fame may be drawing to a close.

4. Chewy Inc. (NYSE:CHWY)

There’s a large roll of calls on this pet company expiring tomorrow ahead of tonight’s earnings call. That means these traders are betting on a jump – but that’s a trade I’m staying far away from. I never buy before earnings. Instead, I’m watching this name to see what the results are – from the sidelines, where my money will be safe.

VIX Traffic Light

At the start of this week, I told you that we were looking at strong days ahead for stocks.

And that’s exactly what’s happening.

Despite rising inflation, stocks are surging higher, all three major indices up as I type. The S&P, in fact, has already hit a new all-time high today.

The VIX, in turn, is behaving as it should – it’s down almost 5% today to about 17. I still forecast a drop to sub-15 by the Fourth of July, so as the VIX continues moving as it’s supposed to (that’s inversely to the S&P), my VIX traffic light remains red.

Let’s finish off today’s issue by heading to the Ask Me Anything section of the Profit Takeover site.

Tomorrow, I’m featuring the best reader questions of the week.

Want to see your question answered? Then send it in right here.

Until then…

Mark Sebastian

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