Not a Good Day for Dow Retail Stocks

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The major indexes all ended today's trading session in the red. The Dow Jones Industrial Average's (DJINDICES: ^DJI  ) lost 61 points, or 0.4%, while the S&P 500 fell 0.27% and the Nasdaq declined 0.19%. Considering the federal government is just days away from a shutdown as it approaches the debt ceiling, the moves lower shouldn't shock anyone.

But not when we consider the positive housing news reported this morning that not only did new-home sales rise by 14.6% in August compared to July but that mortgage applications jumped by 5.5% last week. Both of these data points would normally indicate the economy is strengthening and that consumers are feeling better.

Then around 1:30 p.m. EDT today news broke that Wal-Mart (NYSE: WMT  ) was cutting back on product orders as its inventory was growing too large. While that certainly didn't help the Dow or the broader indexes, it also can't be blamed for stocks in general falling like they did. Regardless of whether Wal-Mart's announcement should have caused investors to panic about the health of the consumer and speculate that other retailers may also start showing signs of weakness, when the king of retail falls, others follow.

Other Dow retail facing components also moved lower -- Nike (NYSE: NKE  ) lost 0.73% while Home Depot (NYSE: HD  ) slide 0.68% -- even with the strong housing data released this morning. But as you can see below, both stocks fell hard when Wal-Mart report hit investors' hands.

NKE Chart

NKE data by YCharts.

The chart clearly shows how traders took information they received, even though it only pertained to one company, and assumed that if Wal-Mart was struggling, other retailers were also likely to be suffering the same fate. The problem with this knee-jerk reaction is that it is all based on what another company reported, which could simply be an isolated problem for Wal-Mart.

While at this time we don't know whether the inventory problem is, in fact, isolated to just Wal-Mart, investors should be careful when considering buying or selling a stock based on general industry information and not company-specific facts. Today may have been a great buying opportunity for investors looking to build positions in retail-oriented stocks, especially for Home Depot since the housing data continues to improve.

A deeper Foolish perspective on the retail industry

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of the last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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