The Ultimate Standoff

With such historically aggressively interventionist monetary and fiscal policies since the global financial crisis--and even more since the pandemic--one ought not be surprised (even though many are, clutching pearls firmly in hand) that the overarching theme in markets and the economy is bifurcation. The financial news media has referred to it lately as "idiosyncratic" data points, but that screams of a cop out from the obvious consequences of such policies which gave way to massive misallocations of capital all the way around. 

As much as I would love to blame one particular political party or politician, the stark reality is that they are pretty much all guilty to some degree or another, with The Fed right at the forefront of these policies which, again, have yielded an economy and market where BBY WMT can surge on earnings while Dollar General gets pummeled as the lowest income folks cannot afford the (relative) cheapest of necessities. 

The net result of these conflicting data points, where the "haves" spend lavishly while the "have-nots" have to max out credit cards to afford Ramen, is that the XRT (ETF for retail stocks) has been dead money for six months and running for an old-fashioned standoff. 

On the XRT daily chart, updated below, we can see that retail stocks have gone nowhere since late-February. Each and every rally has been faded, while the April and August selloffs were quickly gobbled up. This, again, jives with a bifurcated market, since the XRT houses COST WMT as some of the larger market cap components, along with AMZN--It also houses the aforementioned DG. 

Ultimately, when the XRT finally resolves for a directional break from this range it should align with which way the economy is breaking, too. Historically, bifurcation is an incredibly bearish omen as the massive misallocations of capital eventually fall under their own weight, but I acknowledge this time could be different with all of the deficit spending and meddling in markets by the central banks. 

Still, the XRT remains well below its 2021 all-time highs of $104.31. One would think with the top 1% and "boomers" throwing money around as much as they have that this ETF would have easily tested those highs by now. That is a heckuva negative divergence to have as most consumers are now either tapped out or running a much tighter ship than they were a few years ago.