I recently went through my chart book of about 300 stocks and a number of retail plays stood out. I found that retailers of low-priced goods are doing very well compared to those focused more toward the high-end. And that's not surprising due to a general slowing of economic activity. Indeed, consumer preferences generally shift as a direct result of their financial well-being.
To visualize this phenomenon I decided to look at the ratio between Dollar Tree's (NASDAQ:DLTR) stock price -- one of the country's largest low-priced retailers -- and Macy’s (NYSE:M), which carries higher-end merchandise. I also put a 5-year Bollinger® Band on the ratio to distinguish between extreme ratio movements and those that are more mundane. During the past 20 years, a surge outside the bands like we have recently seen has either coincided with past recession (2008) or warned of looming recession (2000).
While this is by no means a sure sign of recession, it’s interesting to note that consumers seem to be acting as if we have already entered one.