As stocks continued their declines on Friday, CNBC's Jim Cramer noticed one of his most dreaded narratives bubbling up in the market: "the death of retail."
"According to this new negative theory, the retail stocks are being hit with a perfect storm of negativity, which makes them far too dangerous to own," the "Mad Money" host said.
Worse, the theory "can't be defeated even by good numbers or a decent employment report, which gave us nice job growth with very little inflation," he said. "Remember: the story doesn't need to be true for it to do a lot of damage."
The main points of the "death of retail" story are fivefold. Cramer said the Federal Reserve, oil prices, earnings comparisons, wages and the trade war with China all play a part. Here's the breakdown:
On the whole, retail stocks have climbed year to date, helped in part by the windfall from the Trump administration's corporate and individual tax cuts. But the Fed's plan to raise interest rates once more in 2018 and three times in 2019 dimmed the outlook for retailers, Cramer said.
"By laying out a path of multiple rate hikes regardless of the data — which is essentially what [Fed Chair] Jerome Powell did earlier this week — the Fed is saying, 'We can't have people make more money than they are because wage inflation must be stopped,'" he said. "If the Fed's going to keep tightening on autopilot, that's more than enough to counteract tax reform."
The fact that oil prices are rising often goes hand in hand with the assumption that consumer spending will be crimped because of higher gas costs, even if more consumers are driving cars that use less gas, Cramer said.
"Your heating fuel bill, likely lower thanks to cheap natural gas in the country, is actually far more important than your gasoline bill, but it's also much less in your face than the price of crude, so people don't notice," he explained.
Around this time last year, retailers saw their earnings results improve, with a number of them including TJX Companies and Walmart reporting strong quarterly numbers. This year, that could come back to bite them, Cramer warned.
"It's going to be harder for them to show decent year-over-year growth going forward," he said. "For money managers who chase growth and thirst for it wherever they can find it, tougher comparisons mean one thing: sell, sell, sell."
Amazon's announcement that it will raise the minimum wage for its employees to $15 an hour is already weighing on shares of the retailers, many of which are now worried they will have to match the e-commerce giant's offering.
"Wall Street likes to paint on broad strokes. Money managers just say, 'OK, everyone's going to have to pay wages that are like Amazon's — as if Amazon somehow sets the minimum wage — and that's all she wrote," the "Mad Money" host said.
Finally, the concern that retailers won't be able to move their production factories out of China quickly enough to stem the effects of the ongoing trade dispute is alive and well, Cramer said.
"Sure, Vietnam is open for business and it's cheaper than China. But you can't put up new factories overnight," he said. "So thanks to the president's tariffs, the consumers may have some sticker shock this holiday season. As Costco told us last night, retailers can either eat the costs themselves — bad for business — or they can squeeze suppliers."
All in all, it's not looking good for the retail stocks, even as Cramer doesn't believe that retail will be weak going into the holidays.
"Taken together, these five factors make it logical to sell nearly every retailer under the sun," the "Mad Money" host said. "Portfolio managers believe that these stocks simply can't be as good as they were last year at this time."
"That means the retail stocks are going to be dumped no matter what, and that's a very big problem for anyone who owns Target or PVH or Best Buy or Macy's — the latter is obviously in the grips of this ... thinking," he continued. "It's going to be a good season for all of these chains, I think, but probably not good enough to make a difference now that Wall Street believes that retail's about to fall of a cliff."
Disclosure: Cramer's charitable trust owns shares of Amazon.
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