Wall Street Bets Against Retail Stocks As Holiday Shopping Season Begins

Investors are betting against the retail sector ahead of the Christmas, with trading volume in put options for retail stocks spiking recently, Bloomberg reports.

A put option gives the holder the right to sell stock at a specified price by a specified date, and is generally regarded as a vote of no confidence in a stock, as it allows an investor to profit when a stock goes down.

The dynamic of investors acquiring retail stock put options has happened before, most recently when retailers revised their outlooks downward earlier this year, and when the first of the pandemic-era restrictions took place in early 2020.

Retail-oriented stocks have been sliding all year. The S&P 500 Retailing index began 2022 at a 4354.14. As of Monday morning, it is 2880.70.

Many individual retail stocks haven't fared much better. For example, Target Corp. stock has dropped more than 31% since the beginning of the year, while Macy's has dropped nearly 20% over the same period.

Walmart stock, however, eked out a 4.1% gain since the beginning of the year.

In the face of high inflation and other economic uncertainty, consumers aren't expected to go gangbusters when it comes to holiday shopping this year, though it won't be a major slump either. 

The National Retail Federation is predicting an increase of 6% to 8% compared with 2021, which was up 13.5% over 2020. Sales were actually up in 2020 compared with 2019 (by 9.3%), but much of that was online sales.

“The consumer is going to be looking for deals, and that will end up likely pressuring margins,” Adams Funds CEO Mark Stoeckle told Bloomberg. “So if you believe that, why would you own these stocks right now?”