Broadly, retail stocks tend to experience price-to-earnings multiple compression when interest rates are rising, points out Jefferies analyst Dan Binder. Based on Binder's research, retail companies need a "trifecta" of strong same-store sales, earnings growth above 15% and steady positive earnings revisions by Wall Street to outperform during an entire interest rate hike cycle.
Indeed, that is far from certain right now given the fundamental shift to online shopping that is pressuring retailer profits. And in fact, it may be even more hard to attain moving forward as Action Alerts Plus holding Amazon (AMZN) runs roughshod over the retail sector with its speed and low prices.
The one wildcard, says Binder, is if increased consumer spending power from the tax reform plan materially boosts retailers and counteracts worries over higher rates.
Somehow we wouldn't bet against Amazon here.