As we can tell from the chart, retailers have on average significantly outperformed broad market averages going all the way back to late 2008. The outperformance has been fairly consistent and continued even this year despite worsening U.S. economic data. However, the longer something outperforms for, the more likely it is to embark on a period of weakness (mean reversion). There are studies that show that industries which do particularly well/poorly over a rolling three year period tend to not do as well/better over the next three.
This seems to be an ideal time to think thatrRetailers may begin to underperform in a sustainable way. Notice that it appears as though the price ratio is in the process of “rolling over,” just as investors come around to the idea that deflation could dramatically impact consumer spending patterns. The above price ratio will be an important one to watch in the months ahead given what it could mean for broader economic health.
The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.