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When Peanut Butter and Jelly Is Bearish for Consumers


When food and beverage stocks outperform, that isn't a good thing for bulls.

Sandwiches are wonderful. You don't need a spoon or a plate!
-- Paul Lynde

Retail sales missed in a big way, and the winter storm was used yet again as an excuse for failed expectations. While I do believe some element of recent economic slowdown is due to the weather, it is highly unlikely that it is the sole explanation for what's going on. In several of my most recent writings, I've noted that retailer stocks, which discount the future, began severely underperforming in early January. This weakness has been completely inconsistent with the narrative over the wealth effect and consumer strength.

Job growth seems to actually be slowing down since December 2013, just as the Fed began tapering, and 30-year Treasuries have not risen in yield since then despite Fed tapering. I have said this before and it bears repeating: Weather today has nothing to do with Treasuries maturing 30 years out. Market sentiment may have pulses of strength here and there, but the overall pressure still looks to favor the downside if your time frame is more in the intermediate term. What makes me say that? Take a look below at the price ratio of the SPDR S&P Retail Index ETF (NYSEARCA:XRT) relative to the PowerShares Dynamic Food & Beverage Portfolio (NYSEARCA:PBJ). As a reminder, a rising price ratio means the numerator/XRT is outperforming (up more/down less) the denominator/PBJ. A falling ratio means the opposite, as the denominator leads.

I personally get a kick out of the ticker for P(eanut) B(utter) J(elly), but its message is no laughing matter. A healthy risk-taking environment should result in discretionary stocks, specifically retailers, outperforming less cyclically sensitive food and beverage names (i.e. a rising ratio). Note that retailers relative to the PBJ ETF peaked in November 2013 and broke down heavily in early January. The trend remains down, which means the market is favoring "safer" consumer stocks. This despite the "wealth effect" and a massive run in equities last year which divorced itself from reflation. This is not a healthy sign for the bulls.

Makes Gray-Haired Bears hungry for more than just a sandwich...

Twitter: @pensionpartners
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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