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Retail Rebound Facing Hurdles in 2022

Big names are overcoming supply problems, but concerns continue Real Money's Kevin Curran says.

Retail stocks have come a long way since the early days of the pandemic, with numerous brand names attracting investor interest in 2021.

Can that trend continue? TheStreet’s Kevin Curran thinks so.

“As the pandemic began to ripple through markets in early 2020, some of the hardest-hit stocks were retailers that felt the pain from store closures and a turn toward what we now term "stay-at-home" life,” Curran wrote recently in Real Money. “In just the month of March during that initial stage, retail ETFs such as the Van Eck Retail ETF  (RTH) - Get VanEck Retail ETF Report slumped nearly 25%, while more vulnerable retailers like Macy's  (M) - Get Macy's Inc Report, Nordstrom  (JWN) - Get Nordstrom, Inc. Report, and Dillard's  (DDS) - Get Dillard's, Inc. Class A Report  saw even steeper declines in the magnitude of 60% to 75% in short order.”

But that was then and this is now. Fast forward to early 2022, and the aforementioned names have been top performers.

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“Retail brands are bouncing back, with larger ancillary competitors and more diversified retailers like Walmart  (WMT) - Get Walmart Inc. Report, Target  (TGT) - Get Target Corporation Report and Costco  (COST) - Get Costco Wholesale Corporation Report carrying the market to new highs ,” Curran noted. “That’s the case as pandemic worries persisted and further issues including supply chain, inflation, and labor problems came into play.”

Curran added that  the resilience of retailers amid these headwinds is certainly surprising, especially given the emergence of the omicron strain. “While Amazon  (AMZN) - Get, Inc. Report and e-commerce-focused retailers like Walmart were perhaps unsurprisingly powerful, the broader rally is no doubt calming for investors in the sector,” he said.

"However, the recent strength is not without those warning of a reversion in consumer spending habits after such strong trends of late. This is especially worrisome as a higher bar is inevitably set for retailers to top in 2022," he added.

The takeaway? At the very least, investors “will need to be selective, not only in the underlying sector of retail they ride with, but also in terms of their ability to contend with a lack of support from the Fed, a near-constant over the past decade,” Curran said.

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