Tariffs and trade policies have been dominating the market action since April 2, but the March retail sales report still has the potential to impact investor confidence and positioning. Economists see sales rising 1.2% month over month, according to Dow Jones. A pull-forward of spending by consumers in an attempt to get ahead of higher prices of goods due to tariffs is seen as the main catalyst for this increase. If the retail sales report is inline or better than expected, Freedom Capital Markets chief global strategist Jay Woods thinks retail stocks could experience a short-term bounce. “Some of these names have gotten way too far out ahead of themselves on the downside that bounces are natural,” Woods said, pointing to the SPDR S & P Retail ETF (XRT) and Home Depot as two examples. “They’ve gotten beaten down and mean reversion could lead to a nice rally over the coming days.” The XRT and Home Depot are 22% and 19%, respectively, below their 52-week highs. Year to date, XRT has fallen 17%, while Home Depot has shed about 9%. Callie Cox, chief market strategist of Ritholtz Wealth management, also sees potential for a bump in consumer discretionary stocks on the back of a strong report. “Consumer Discretionary stocks have been hit so hard that they may be more susceptible to a relief rally on the back of a retail sales report that doesn’t show the economy is falling apart,” said Cox, who added she is excluding Tesla and Amazon from the potential trade because they have narratives that are much different than the rest of the sector. The Consumer Discretionary Select Sector (XLY) has lost more than 15% this year. Others are less sanguine ahead of the report. “It can only hurt, it can’t make it better,” said Malcolm Ethridge, managing partner of Capital Area Planning Group, who believes the numbers will miss expectations despite a possible pull-forward of sales. “I would be selling retail short term,” he said. “I don’t think that the is anything that the report can say or any of the earnings that are going to come out that is going to make these positions any better.” Jimmy Lee, founder of Wealth Consulting Group, expects a softer retail sales report than estimates and thinks that the weakness could extend to travel and leisure. “I think all the trips that normally would be booked right now for summer vacation to Europe and stuff like that you may see little bit of a slowdown there, more than what we’ve been used to,” Lee said. The smart play is going more defensive ahead of the report. “I don’t think you are going to see some blowout report,” said Lee, adding he likes staples, health care and utilities heading into Wednesday’s report.
