What happened

It's another wild day for stocks. Dow futures swung by over 1,000 points overnight, and were trading in the red this morning. The S&P 500 opened moderately higher before falling back to being unchanged and then surging to gains of close to 3% after noon on hopes that central banks around the world would intervene to stop the coronavirus-fueled sell-off.

Despite that rally, not every stock was in the green. Macy's (M 1.99%)Kohl's (KSS 0.55%), and Bed Bath & Beyond (BBBY) had all fallen by more than 5% this morning. As of 12:50 p.m. EST, Macy's stock was down 3.7%, Kohl's was off 3.3%, and Bed Bath & Beyond stock had declined 3.5%.

At the same time, the SPDR S&P Retail ETF (XRT 1.79%) was actually up 0.6% showing that not all retail stocks were swept up in the sell-off. Nonetheless, the sector was still underperforming the overall market.

A stock chart with an arrow going down

Image source: Getty Images.

So what

Kohl's is set to report earnings tomorrow morning, but one analyst is growing more skeptical of the department store chain ahead of the report. Wedbush's Jen Redding lowered her price target on the retailer from $45 to $35, but maintained a neutral rating on the stock. Redding said she was "cautious" heading into earnings as her data shows a spike in inventories and increased promotional activity, signs that point to a weak holiday quarter.

There was no specific news out on Macy's or Bed Bath & Beyond today, but all three of these stocks tend to respond similarly to macroeconomic news and are often grouped together by investors. They're all struggling retailers that are trying to fend off the changing shift in the industry that has redirected sales away from department store chains and mall-based retailers and toward e-commerce operators and more nimble brick-and-mortar chains.

The trio has fallen sharply during the COVID-19 sell-off, underperforming both the broad market and the retail sector as shown by the SPDR S&P Retail ETF.

^SPX Chart

^SPX data by YCharts

Over the weekend, reports showed COVID-19, the disease caused by the recent coronavirus outbreak, slowly spreading in the U.S. and fear is mounting. Investors are worried that an outbreak would keep shoppers at home and that these retailers will experience supply chain disruptions as the virus has caused a manufacturing slowdown in China, a key source of merchandise for these companies. In the Macy's earnings report last week, CEO Jeff Gennette said the company has seen a slowdown in shipments coming from China due to the outbreak. 

What also seems to be affecting this group of stocks today is a bifurcation in the sector. Retailers that sell groceries and other necessities, including CostcoWalmartTarget, and Kroger are all rallying amid reports over the weekend that there was a run on some food items at supermarkets as Americans stock up for a potential outbreak. Some Americans are fearful that lockdown conditions may be prevail similar to what's happened in countries like China, Japan, and Italy if the disease spreads in the U.S.

If consumers are focused on stocking up on necessities, that means they're not visiting stores like Macy's, Kohl's, and Bed Bath & Beyond, which specialize in apparel and home goods.

Now what

The continuing sell-off of these weaker retailers is a reminder that these stocks are likely to underperform until news about COVID-19 shifts. Though Macy's, Kohl's, and Bed Bath & Beyond are all cheap, and their dividend yields have soared over the last week, they can ill-afford to suffer setbacks outside of their control as they are already struggling to keep customers. There's still a lot of uncertainty around COVID-19. We don't know how severe the supply chain impact will be, nor do we know to what extent the outbreak will hit the U.S., or how long it will last.

Investors will want to pay attention to the Kohl's earnings report tomorrow morning. Analysts expect total revenue to tick down 0.2% to $6.52 billion, and earnings per share to fall from $2.24 a year ago to $1.88, which follows a comparable sales decline of 0.2% in November and December. However, investors will want to play close attention to the company's outlook for 2020 and management comments on the coronavirus as they will offer the most up-to-date perspective on the outbreak.