There’s no need to panic yet, but U.S. stocks suddenly look a touch shaky. All three broad market indices fell in trading on Monday. A 0.86% decline in the S&P 500 was that index’s steepest fall since Oct. 8. It has been equally as long since U.S. stocks pulled back more than 1% over any stretch.
Again, there’s not much reason to suggest that the rally this year suddenly is over. But a minor correction wouldn’t be a shock. Valuations across the market look potentially stretched. Disappointing industrial data and new tariffs appear to have driven Monday’s sell-off, and news on either front looks unlikely to change any time soon.
It has been the U.S. consumer that’s held up the economy and the market — and strong Black Friday sales provide some reason for optimism. Tuesday’s big stock charts focus on plays in the consumer space, all of which seem to need some help at the moment.
For investors who see the two-day decline as yet another buying opportunity, these three stocks should be attractive. But if the market sell-off will continue, declines in all three names could accelerate.
Dollar General (DG)
Dollar General (NYSE:DG) heads into fiscal third-quarter earnings on Thursday morning in a precarious position. The first of Tuesday’s big stock charts suggests downside ahead, and there are fundamental concerns:
- Technically, DG stock simply looks like it’s rolling over. Shares jumped sharply after a big second-quarter beat in late August. Sideways trading since then established a pennant pattern. The exit from that pattern to the downside — and a three-month low — is a bearish signal. With DG now below its 20- and 50-day moving averages, the next support level is all the way down at $140, which would fill the post-earnings gap up.
- DG stock isn’t necessarily expensive, at 21x forward earnings. But that’s a large multiple relative to the stock’s historical range. Rival Dollar Tree (NASDAQ:DLTR) trades at just 16.5x next year’s estimates. DLTR stock admittedly plunged after earnings last week, and has continued to fall. That isn’t necessarily bullish for DG stock either, however: a similar miss from Dollar General could raise concerns about the dollar store space as a whole.
- And the obvious concern here is competition. It was dollar stores that pressured Walmart (NYSE:WMT) earlier this year, but that giant appears back on track. Target (NYSE:TGT) is taking market share. Even Amazon (NASDAQ:AMZN) might be a bigger factor with its nationwide rollout of one-day shipping. If Dollar General earnings for Q3 disappoint at all, the narrative surrounding the stock can change markedly. At the very least, the first of our big stock charts suggests investors are increasingly worried about Thursday’s report.
Simon Property Group (SPG)
Shares of mall operator Simon Property Group (NYSE:SPG) touched a five-year low last month, but it could be worse. SPG stock actually has held up better than most plays in its space, but the question at the moment is if sector weakness will pull the stock down to new lows:
- Technically, the outlook looks somewhat concerning. SPG stock has formed a descending triangle, which usually suggests an eventual fall through support. That support has held up so far, with SPG seeing a usually-bullish multiple bottom, but the trend of consistently lower highs adds to the pressure. Near-term moving averages look like resistance at the moment as well.
- It might seem outlandish to suggest that Simon stock can keep falling. Simon remains the best of the mall REITs, and at $140 it would yield a seemingly stunning 6%. But investors could have said much the same about smaller rival Macerich (NYSE:MAC). That stock saw a similar pattern just two weeks ago and fell through support soon after. News from CBL & Associates (NYSE:CBL), which suspended its dividend on Monday, may drive further pressure across the space.
- And so the fundamental question seems to mirror that of the chart: where’s the upside catalyst? SPG stock is declining even amid consumer strength. It has outperformed other mall plays, but still provided negative returns including its dividend. For SPG stock to rally, either investor bullishness needs to accelerate, or sentiment toward high-end malls needs to change. There’s not much reason to see that latter shift happening any time soon, which adds to the sense from the chart that support is bound to yield at some point.
Public Storage (PSA)
The news does look better for another consumer-facing real estate investment trust, Public Storage (NYSE:PSA). PSA stock has pulled back sharply since the beginning of September. But there’s a reasonable “buy the dip” case here, with signs of stabilization on the last of Tuesday’s big stock charts:
- Technically, the chart has improved in recent weeks. Near-term moving averages reverted from support to resistance as PSA stock reversed in early September. So-called “death crosses” last month, in which short-term moving averages crossed over the 200DMA, generally bearish signals. But support seems to have held around current levels, and at decent volume. There seem to be buyers willing to step in at the moment.
Other considerations argue for $210 as an attractive entry point. Extra Space Storage (NYSE:EXR) has a similar chart and has held support, suggesting that investors are reasonably optimistic toward the space. PSA now trades below 20x this year’s core funds from operations (FFO), a measure of REIT earnings. And a 3.8% dividend yield looks attractive; it would seem unlikely in a bullish yet low interest rate environment that PSA would yield above 4%. That suggests $200 as a near-term floor.
- All that said, PSA needs some help from the macro environment. Storage spending is more sensitive to consumer confidence than revenue streams for other REITs. Yields elsewhere are higher, and P/FFO multiples are lower. There does seem to be a nice fundamental case here for buying an excellent company at an attractive valuation, but investors need to trust the economy and the market for that case to hold.
As of this writing, Vince Martin has no positions in any securities mentioned.