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Beaten-down retail stocks are the 'canary in the coal mine': Strategist

Can wrecked retail stocks turn around?

Whatever happened to the Santa Claus rally?

Retail stocks have hit the skids as names like Macy's and Kohl's reported weak holiday sales, and the move could signal market turmoil ahead, according to some strategists.

"I think the retail stocks right now are the canary in the coal mine. And I'm not sure that we'll necessarily see a turnaround," Gina Sanchez, CEO of Chantico Global, said Thursday on CNBC's "Trading Nation."

Sanchez noted that some big-box names have not only reported weak holiday sales, but are also seeing continued overcapacity. A lot of hope is hanging on anticipation of wage growth under the incoming Trump administration, Sanchez said. The poor performance of the retail stocks on Thursday "might give us a sobering view of the underlying strength of this economic rally, which is to say that it is fragile, and that bad policies could in fact take it off of its recovery," she added.

Shares of Kohl's fell 19 percent Thursday for its worst one-day performance ever; shares of department stores J.C. Penney, Dillard's and Macy's fell 7 percent, 10 percent and 14 percent, respectively.

Meanwhile, online retailer behemoth Amazon closed 3 percent higher.

According to Bespoke Investment Group, all but seven of the 54 stocks in the firm's "Death by Amazon" index — tracking the performance of retail names it deems vulnerable to consumers' shift to online shopping from brick-and-mortar stores — were down by Thursday's market close. The average return of the 54 names were down 3.57 percent.

The retail stocks were one of the hottest trades following the election, but they have cooled off in recent weeks, like much of the Trump rally. And investors' hopes that economic growth will improve "quickly" under President-elect Donald Trump's administration is generally unrealistic, according to Matt Maley, equity strategist at Miller Tabak.

"We've, I think, gone too far to one side in terms of basking on hope. I'm not saying that things aren't going to be as good as things are hoping for, but [the market] is kind of priced to perfection," Maley said on "Trading Nation."

"And, boy, whenever you're priced to perfection, it doesn't take much of a hiccup to cause markets to get hit very hard."