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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (8285)2/19/2004 9:32:17 AM
From: Crimson Ghost  Read Replies (2) of 110194
 
Retailers: An Imminent Margin Squeeze?
2004-02-19 08:42:00

Retail stocks have recently caught a bid prior to the release of upcoming fourth quarter results from several of the index heavyweights. However, our models warn that any strength should be used to sell. While overall retail sales growth is likely to stay solid, several mounting headwinds suggest that the relative performance of retailers is set for a cyclical downtrend. Import prices of consumer goods (shown inverted and advanced, excluding autos) are rising, putting upward pressure on retailer’s costs. Retailers are having difficulty passing through higher product prices to consumers, as highlighted by the steady decline in the ratio of core consumer prices to core producer prices. Until rising goods prices feed through into higher consumer prices, then retail profit margins will be squeezed. Historically, it has paid to heed these warning signals. Bottom line: stay underweight retailers, the industry’s outperformance over the last couple of weeks should prove temporary.

 
 

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