To trade a recession: Shorting retail

Six ways from Sunday

Empty shopping carts await customers at a Costco near you. Photo courtesy of Christina Cantwell.

Talk of recession in the United States (and elsewhere) is only increasing. Like a mite that burrows ever deeper once it breaks the skin, it’s perceived inevitability seems to be gaining momentum. Yet, money can be made in any market, up, down, or sideways; it’s only when a market ceases to exist altogether that the opportunity to profit from it disappears. Given that, one particular security looks ripe for shorting in the event of an oncoming recession: XRT, State Street’s SPDR® S&P® Retail ETF.

Why?

1. Businesses in the retail sector of the American economy are unlikely to be bailed out by the federal government in the event of a financial crisis, unlike major banks or manufacturers. One can review the ’08 crash for evidence of that.
2. Consumerism historically takes a disproportionate hit in times of trouble, especially where it comes to big ticket items.
3. An impending recession is only an additional headwind retail companies may face, not the entire story. The industry has already been shaken up by things like the Amazon effect, and, as of today, will begin to feel the hurt of tariffs from Trump’s trade war with China. In other words, the sector as a whole is already in an increasingly weakened state, with some players now truly reeling from the…