It’s been a rough week for shares of Bed Bath & Beyond.
The retailer’s stock has dropped more than 24% since its Thursday earnings report, which cited slowing traffic in stores and rising costs associated with the supply chain.
With FedEx and Nike flagging similar issues in their latest reports, traders and investors may need to reconsider their exposure to retail, Joule Financial Chief Investment Officer Quint Tatro told CNBC’s “Trading Nation” on Thursday.
“This is very concerning to us, especially the price action,” Tatro said. “The magnitude of the decline tells us that traders were significantly poorly positioned for this news.”
“Investors and traders have to look through their portfolio, and I don’t think they have to be shy in raising some cash across the board, especially in these sectors,” he said. “We might get bounces along the way, but this is a time period, in our opinion, to start being very defensive.”
Investors should indeed get more cautious in the retail space, MKM Partners’ chief market technician J.C. O’Hara said in the same interview.
“This is a shot across the bow not just to the consumer, but to retail in general over the next one to two quarters,” he said. “Supply chain issues are small until they become large, and we saw Bed Bath & Beyond and the comments from the CEO suggest that this is no minor issue.”
He looked ahead to a different retailer’s report to confirm his concern.
“Next Tuesday, Oct. 5, we get a report from Levi’s,” O’Hara said. “I’ll be very curious to see if, one, they cite supply chain issues, which I’m sure they will, but also what about inflation from commodities?”
Prices for cotton, which is widely used in Levi Strauss products, are at decade highs after a nearly 35% run this year, O’Hara said.
“This is real inflation. So I wouldn’t be surprised if there’s some further downside to Levi’s sitting on key support right here,” he said. “We could see it down another 20% following earnings, so that’s my bellwether I’m looking at closely next week.”