Mixed Feelings on Rate Hike; Time to Buy Retail?
The S&P 500 ETF (SPY) - Get Report is hovering near session lows Thursday, following a slew of Federal Reserve leaders making comments throughout the day. It leaves investors increasingly expecting a rate hike in December.
On CNBC's "Fast Money Halftime" show, Jon Najarian, co-founder of Optionmonster.com and Trademonster.com, says the Fed doesn't want to take investors off guard, so it is instilling the idea of a potential rate hike. With that being said, investors have been expecting a hike for a while, to no avail. The Fed very well could hold off again, he said.
Joseph Terranova, chief market strategist for Virtus Investment Partners, said he believes the Fed will hike this month, as volatility is low and the S&P 500 is near its all-time highs. The one concern would be the impact to the U.S. dollar.
Pete Najarian, co-founder of Optionmonster.com and Trademonster.com, took a closer look at the CBOE Volatility Index I:VIX , which is up 7% on the day. However, over the past six weeks, it has been crushed lower as the stock market has mostly rallied. Look for this to start moving higher, especially if investors grow more uncertain in the coming weeks.
Mario Gabelli, chairman and CEO of Gabelli Funds, says a rate hike is long overdue. Regardless of whether the Fed hikes in December, interest rates are headed higher. It's the pace that is more concerning, which could be more damaging to the economy if it occurs too rapidly.
The consumer is still doing pretty well, as indicated by rising auto and housing sales. Consumers are benefiting from rising wages and more jobs. Their wealth is building and confidence is better too, Gabelli said.
As for the beaten-down retail sector, Gabelli said he's a buyer of Macy's (M) - Get Report after the stock fell 14% on Wednesday. The selloff is overdone, even though there are clearly some issues for traditional department stores. He really likes auto parts suppliers, like AutoZone (AZO) - Get Report , Genuine Parts (GPC) - Get Report and O'Reilly Automotive (ORLY) - Get Report .
Macy's has been weighing down the entire retail sector, when in fact, many companies could be doing very well, Pete Najarian said. Specifically, he likes Nordstrom (JWN) - Get Report because of its discount and e-commerce businesses, as well TJX (TJX) - Get Report and Ross Stores (ROST) - Get Report .
Nordstrom reports earnings after the close.
Jon Najarian pointed out the 6% rally in shares ofKohl's (KSS) - Get Report following the company's top- and bottom-line earnings beat. Smaller retailers -- unlike Macy's -- are able to more easily navigate the current headwinds, he said.
J.C. Penney (JCP) - Get Reportreports earnings on Friday, and Jim Lebenthal, CFO and CIO of Lebenthal & Company, is bullish on the stock. The company already said same-store sales growth was more than 6%, to go along with strong earnings growth and margins. The company continues to execute at a high level, and the turnaround is well on track.
Terranova added that it seems like J.C. Penney is taking market share from Macy's, after Penney's lost market share to Macy's several years ago. It's been hit and miss with many retailers, but certain brands have continued to do well despite the retail mess. Specifically, he referred to Nike (NKE) - Get Report , Under Armour (UA) - Get Report and L Brands (LB) - Get Report .
Steve Kernkraut, portfolio manager at Durban Capital, said he's the most bearish he's been on retail in five years. Although traditional retail is doing poorly, the consumer is still quite strong. Sales are going to electronics -- like Apple (AAPL) - Get Report -- as well as an increase to online sales, through the likes of Amazon (AMZN) - Get Report .
The excess inventory at Macy's could hurt other retailers, like Kohl's and J.C. Penney, because the steep discounts will lure customers into Macy's and away from the others, Kernkraut explained. He agreed that athleisure brands like Nike, Under Armour and Lululemon Athletica (LULU) - Get Report are continuing to do well.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.