The man whom CNBC's Jim Cramer calls "the best retail analyst on Wall Street" is positive about the improving state of the retail sector — but there's a non-retail catch.
Matthew Boss, J.P. Morgan's equity research analyst focusing on retailing, department stores and specialty retail, said "the optimism was in the air" at his recent Retail Roundup conference.
"Strong underlying consumer, inventories in a great shape — the best shape they've been in years across all subsectors — and you have more fashion on the floor," Boss told Cramer in a Tuesday interview. "There's more innovation, there's more newness across the board, no matter which demographic."
"This is the wildcard to this space," Boss told Cramer, host of "Mad Money."
U.S.-China relations remain in limbo as President Donald Trump's administration levies trade restrictions on the People's Republic. Market-watchers are wondering if, and to what degree, China might retaliate against U.S. companies.
Boss suggested that investors approach the issue and their portfolios with three fundamental questions in mind.
"No. 1, who has the most exposure from a foreign sourcing perspective? I think, if you look, it would be the global brands, so the Ralph Laurens of the world and Coach [now Tapestry] would be your two highest from a direct sourcing perspective," Boss said Tuesday.
Third, Boss advised investors to keep an eye on the stocks of department stores that have large private label offerings, as their private brands may be manufactured in China.
"What I will say, though, [is] retailers are taking a wait-and-see approach here," Boss told Cramer. "They don't believe that right now apparel and footwear is not in the conversation, and they do believe that pricing power will, longer term, separate the winners and the losers."
As for lower risk equities, Boss recommended owning the off-price trifecta of Burlington, TJX Companies and Ross Stores, as well as the middle-income-focused Kohl's on the burgeoning themes of strong consumer spending and more innovation.
"Across the board, you're hearing these similar trends, and it's optimism for the upcoming back-to-school and for the remainder of the year," Boss said.