The official unemployment rate is down. But, if you think that means more money in the hands of consumers to spend at stores such as Wal-Mart, guess again.
Wal-Mart U.S. CEO Bill Simon has remarked in interviews thatthe discount retailer isn’t seeing the gains in employment trickling down to the chain’s cash registers. Simon said to CNBC:
“I think the economic numbers – the unemployment numbers in particular – have been difficult to read with the number of people dropping out of the workforce. And I think it’s going to take a while – six months or more – for the numbers to balance out…. Hopefully after six years, we're starting to gain a little bit of traction and that traction is coming at the top end. I think the middle and down is still pretty challenged.”
If a strong jobs report doesn’t mean more sales for the likes of Wal-Mart, is that a warning to the economy as a whole?
“This is obviously an economic problem,” said Gina Sanchez, founder of Chantico Global. “Wal-Mart is a big bellwether, so it’s worth looking at to understand what’s happening.”
Retailers get hurt if employment numbers don’t translated into meaningful wage or disposable income growth, said Sanchez, a CNBC contributor. “Wal-Mart actually does well when the economy’s doing well,” she added. “We’re seeing all of these upbeat numbers. We’re seeing proof that we are generating more jobs. But, we’re not really generating more income – or at least not a lot of income growth – and that’s important.”
Without income growth, “people have just scaled back in terms of their spending,” Sanchez said. “That’s hitting Wal-Mart, and I think it’s going to hit the retail sector.”
Ari Wald, head of technical analysis at Oppenheimer & Co., is pessimistic about Wal-Mart and the retail sector in general.
“It’s a sell,” said Wald about Wal-Mart. “It’s in my least favorite sector. I just don’t think the consumer staples in general have enough juice to keep up with this equity market. And, Wal-Mart fits into that boat.”
What worries Wald about Wal-Mart is its chart. He sees a distribution pattern over the past year, indicating signs of a potential top. “You’re seeing volume confirm that as well, where each subsequent rally has been … on lighter trading volume and this is a very big concern,” he said.
Though the stock currently trades in the $76 range and Wald doesn’t believe a top is confirmed until it breaks below $72, he doesn’t believe investors should wait to get out of the stock.
“Best case scenario, the stock continues to move sideways [and] underperforms a rising equity market,” Waldsaid. “I think it’s a sell. I think your funds are better used elsewhere.”
To see the full discussion on Wal-Mart, with Sanchez on the fundamentals and Wald on the technicals, watch the above video.
- Consumer Discretionary