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.