Consumers are getting some welcome relief in a direct and tangible way. Oil prices are down about $10 a barrel, and the price of a full tank of gasoline is a few bucks cheaper than it was a month ago. Expectations are that prices will stay low—at least through the summer.
Great news, right?
Maybe not. That's because the broader economic worries that are causing the prices to drop are potentially far more destructive and entrenched than a few bucks of brief relief.
The point is, while stocks have slid about 2.5% so far in May, the list of casualties is full of consumer and retail names at the very time that we are supposed to be feeling a little more flush.
"There are still a ton of cons out there," says John Canally, Investment Strategist with LPL Financial, in the attached video. "But over the next couple months, I think the cons will outweigh the pros, and the consumer discretionary sector will continue to struggle."
In fact, of the 81 stocks that make up the Discretionary Sector (XLY), half are having a worse May than the market. Of these laggards, half of them have done anywhere from 5% to 40%, including names like Fossil (FOSL), Priceline (PCLN), NetFlix (NFLX) and McDonald's (MCD).
Canally says the rising dollar/weak Euro is partly to blame for the slump in energy. Furthermore, the sluggish job market and the "tepid-at-best" real estate sector (made worse by the threat of more foreclosures) is adding to worries.
"We might have seen the top in Consumer Discretionary share as we head into the summer," he warns. "The best bet right now...you might want to take some profits and just, kind of, hide out through the summer and see if things look a little better in the fall."
Until then, he says, there are trades to be made in a down market, which is why he's shorting the Euro and the S&P 500.
"Ultimately, the best defense is cash. In times like this you want cash over gold," he concludes.