It’s been a tough week for Bed Bath & Beyond stocks.
The retailer’s shares have fallen more than 24% since its earnings report on Thursday, which cited slowing in store traffic and rising costs associated with the supply chain.
With FedEx and Nike pointing to similar issues in their latest reports, traders and investors may need to reconsider their retail exposure, Joule Financial chief investment officer Quint Tatro told CNBC’s Trading Nation on Thursday.
“This is very worrying for us, especially the price development,” Tatro said. “The magnitude of the decline tells us that traders were significantly poorly positioned for this news.”
“Investors and traders have to go through their portfolio, and I don’t think they should be shy about raising liquidity at all levels, especially in these sectors,” he said. “We could get some rebounds along the way, but it’s a time, in our opinion, to start to be very defensive.”
Investors should indeed become more cautious in the retail sector, said JC O’Hara, chief market technician at MKM Partners, in the same interview.
“It’s love at first sight not just for the consumer, but for retail in general over the next two quarters,” he said. “Supply chain issues are minor until they become significant, and we’ve seen Bed Bath & Beyond and the CEO’s comments suggest this is not a minor issue.”
He turned to another retailer’s report to confirm his concern.
“Next Tuesday, October 5, we get a report from Levi’s,” O’Hara said. “I’ll be very curious to see if, a, they cite supply chain issues, which I’m sure they will do, but also what about commodity inflation?”
Prices for cotton, which is widely used in Levi Strauss products, are at a decade high after rising nearly 35% this year, O’Hara said.
“This is real inflation. So I wouldn’t be surprised if there were other downsides to Levi’s sitting on a key support here,” he said. “We could see it drop 20% after earnings, so this is my indicator that I’m looking at closely next week.”