Talking Numbers

Why winter is a bigger threat to stocks than you think

Winter a bigger threat to stocks than you think

Retail sales in the US took a hit in January, thanks in large part to the terrible weather. And, that may not be a good thing for stocks down the road.

The Department of Commerce says January retail sales were down 0.4% compared to December, though up 2.6% over January 2013. Take out autos and related parts and the retail sales were just flat compared to December, though up 3% compared to last year.

"We don't want to scare anyone," wrote Chris Rupkey, Chief Financial Economist at Bank of Tokyo-Mitsubishi, in a Thursday morning note, "but one rule of thumb for a recession, when the economy is thrown completely back into reverse, is three consecutive months of declining retail sales. We have two months now. "

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As if that's not scary enough, consider that the market benchmark S&P 500 index has a lot of retail stocks that may not have good news to report when first-quarter earnings are released in a couple of months. In case you were wondering, consumer goods make up the largest sector of the index, comprising 37.5% of the index's entire market cap.

CNBC contributor Gina Sanchez, founder of Chantico Global, says it's not just poor sales in the weather-sensitive auto industry that has the markets guarded. "We're looking at some weakness in retail that can't be explained by the weather," says Sanchez. "That's really what people are watching."

For that reason, Sanchez warns investors to stay away from buying retail stocks for their portfolios.

"If you own retail stocks right now, it's really not a great time," says Sanchez. "I wouldn't be adding to them. I wouldn't necessarily sell them but I wouldn't be adding to them."

(See: CNBC's Retail coverage)

Andrew Busch, editor and publisher of The Busch Update, says investors in retail stocks should be outright selling. Looking at a chart of the SPDR S&P Retail ETF (the XRT), Busch says investors should start selling.

The XRT closed Thursday at $81.44 but he sees the ETF potentially falling to a price in the $70s.

But it's not just the technicals that make Busch wary of retail stocks. At the end of 2013, 1.3 million unemployed Americans saw their unemployment benefits expire. "The ending of the jobless benefits [is] hurting retail spending as well," says Busch.

To see the rest of the discussion on what's next for retail given the weather with Sanchez on the fundamentals and Busch on the technicals, watch the video above.

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