CHART OF THE DAY: What Shares Of Wal-Mart Say About The Dual-Track Recovery

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The below chart compares shares of Wal-Mart with the consumer discretionary ETF, and as you can see it’s reversed sharply since the worst of the recession, when discretionary spending collapsed, and everyone bid up Wal-Mart as a defensive play.

Now the ratio is near historical lows.

This makes perfect sense for the type of recovery we’re seeing: Those at the high end have jobs, and are spending as much as ever. Those at the low end, who were Wal-Mart’s bread and butter have lost the most jobs.

But there are two scenarios where this ratio could turnaround.

The first is the bad scenario: If the US economy dipped again, then discretionaries would hit an air-pocket, and Wal-Mart would return to favour as a defensive play.

In good scenario, job growth comes back to the lower-rungs of the work force, again Wal-Mart benefits.

Only in the status quo: ongoing strength for the high end and continued weakness for the low end of the workforce, with no real change in either, would this ratio not revert.

chart of the day, consumer dicretionary etf vs walmart, jan 2011

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