On Friday investors remained cautious of the market with the S&P trading lower due to concerns that higher commodity prices were starting to take their toll.
In fact, those worries were amplified by the latest result from Gap, which said that its expenses are rising faster than it anticipated, and it's now spending about 20 percent more to produce each item than it did a year ago.
Also Aeropostale forecast earnings well below expectations citing rising cotton costs.
On the news, investors went running for the exits in retail broadly, interpreting the results to mean higher commodities were starting to hit companies where it hurst most - on the bottom line.
How should you position?
Instant Insights with the Fast Money traders
Trader Stephen Weiss thinks the market may have gotten it wrong. “The ability of companies like Gap to pass along higher costs is a function of how desirable their products are to shoppers,” he says. In other words, it would be a mistake to extrapolate headwinds that Gap is facing as headwinds for the entire retail sector.
Trader Patty Edwards says much the same. “Gap needs to make merchandise that people want.” She points out that other specialty retailers such as Zumiez and FootLocker can pass along higher costs “because they have the right product for their customers.”
Trader Steve Grasso adds something that Karen Finerman says all the time. It’s a mistake to lump all retailers as all risk on or all risk off. In other words some retailers are executing well and remains attractive for their valuations. “Macy’s and Kohl’s are not the same story (as Gap), says Grasso. I’d be a buyer on weakness.”
Trader Pete Najarian thinks the trade is long Dollar Tree. Despite the recent run, he’s putting the name on his radar.
What do you think? We want to know!