Is A Mixed Consumer Good For The Economy? (DLTR, GPS, URBN, TIF)

Brian Sozzi of Wall Street Strategies is out with a

on the consumer discretionary sector, and he notes some interesting divergences beginning to take place over the past month, which may not be indicative of a strong economy going forward. Sozzi notes the recent outperformance of dollar stores like Ninety Nine Cents Stores

, Family Dollar

. The last time these stocks started to lead was right before the 2008 financial crisis, amidst all the uncertainty. Over the one-month time frame Sozzi chose, these stocks rose an average of 4.76%. Sozzi writes, "The risk on trade within the consumer discretionary sector has been silenced in one month's time. There are obvious pockets of underperformance from the 95 total company screen I used in fleshing out the data below. The fabric that binds most of the lagging stocks is a heavy exposure to cotton as an input cost (such as in teen apparel) and a subsequent unknown as to the consumer response to ticket price increases north of 15% in the second half of 2011." He goes on to say, "Another theme from the data set is the relative underperformance of companies whose business models are predicated on the consumption patterns of upper-income earners. Stocks that I would classify as luxury goods plays have underperformed the S&P 500 index by almost three times in the past month (despite some of these companies partaking in emerging market growth) as a break in the upward trend in equities markets has called into question the forward propensity of this group to spend. " Sozzi notes the diverse consumer sector performance, and what it might be saying. "Conversely, three sectors that have outperformed are mid-tier department stores, off-price retailers, and dollar stores, for slightly varying reasons. The core principle I suppose between these three sectors is that when faced with tougher choices on discretionary goods in light of price increases, consumers will trade down, leading to greater unit sales of inflationary products (note these sectors offer relative value to the consumer when inflation hits)," Sozzi wrote. Sozzi made sure to note the underperformance of the luxury names like Tiffany

, Coach

, Ralph Lauren

and Nordstrom

. Over the one month time horizon, these stocks fell an average of 10.07%. He also noted the underpeformance of names like TJX Companies

and Ross Stores

, which fell an average of 3.45% during the month. He also noted the severe decline in teen retailers, like Urban Outfitters

, Aeropostale

and Guess

. As a group, teen apparel fell 12.2%, the worst among the groups.