I was recently going through my chart book of about 300 stocks I look at at least once per week and there were a number of retail stocks that stood out to me. The general trend I see in the sector is retailers of low-priced goods are still doing very well while those focused more on the high-end are doing less well. And it stands to reason that this could be due to a general slowing of economic activity. Consumers’ preferences shift dramatically only as a direct result of their financial well-being.

To best visualize this phenomenon I decided to look at the ratio of Dollar Tree’s stock price (DLTR), one of the largest low-priced retailers in the country, to Macy’s (M), one of the largest high-end department stores. I also put a 5-year Bollinger Band on the ratio to try to distinguish extreme movements in the ratio from those that are more mundane. In the past 20 years, a surge outside the bands like we have seen recently has only either coincided with (2008), or warned of (2000), recession.

DLTR-M

This is certainly not a sure sign of recession. It’s only a ratio of two stock prices and there are only two prior occurrences. However, it’s interesting to note that consumers at these two major retailers seem to be acting as if we have already entered one.

Related:

Over The Past 50 Years An Earnings Recession Of This Magnitude Has Never Failed To Trigger A Bear Market