The State of the Market -- Part III

This is the third of a four-part piece about what groups are working as we begin to wind down 2009. Be sure to read the first and second parts.

Group 4: Retail. This much-maligned group has to deal with the endless "no back-to-school season" stories. At last we are back to school so maybe those will die out!

We annualized some of the toughest compares imaginable -- numbers inflated by an early Labor Day, big stimulus checks and pre-Lehman Brothers employment tables -- and we came within low single-digit comp numbers on many of them -- and I am not even going into the Aeropostale (ARO - commentary - Trade Now) world.

I know that there's a perception that the only companies that have really done well are the discounters -- TJX (TJX - commentary - Trade Now), Ross Stores (ROST - commentary - Trade Now), Family Dollar (FDO - commentary - Trade Now), Big Lots (BIG - commentary - Trade Now) and so forth. But there's not enough truth there though.

While TJX and Ross have done well, they have feasted on the woes of other retailers with too much inventory. There's not a lot of inventory in the pipe, so I wager that they are peaking. The true trade-downers, Big Lots and Family Dollar -- seem to have peaked already.

What I think needs to be refuted, and where I think the onus is on the bears to come through, is the unmitigated strength in the charts -- remember the presage underlying strength down the road -- in discretionary plays like Tiffany (TIF - commentary - Trade Now), Capital One (COH - commentary - Trade Now), Nordstrom's (JWN - commentary - Trade Now), Williams-Sonoma (WSM - commentary - Trade Now) and Polo Ralph Lauren (RL - commentary - Trade Now).

You don't need to go to any of those if you are really struggling. The one that is most notable is Williams-Sonoma, a high-end housewares company that you go to when you are feeling rich, not poor, as anyone who has shopped there and seen those prices knows all too well.

Kohl's (KSS)

The amazing strength in Kohl's (KSS - commentary - Trade Now) takes my breath away. That's a good operator, not a great one, and it is doing as well as it was last year. The Gap is doing better, which says something. We just saw early strength in pricey Dick's Sporting Goods (DKS - commentary - Trade Now) and some big insider buying -- first time -- in Cabela's (CAB - commentary - Trade Now), a totally discretionary hunting store that you have to go miles to get to.

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