For a Change, Oil's Latest Tear Not Dragging Down Retail Shares

(Bloomberg) -- The only thing that oil mixes worse with than water might just be retail stocks.

Typically, when households are faced with higher prices for a must-have -- like gasoline -- they're forced to forgo purchases of more discretionary items. When filling up the Escalade gets pricier, you hold off on adding 22-inch rims or Lamborghini doors. That rationale is typically borne out in financial markets, with retail stocks faring worse than other industry groups when oil gains, and vice versa.

But recently, that hasn't been the case: The 90-day correlation between the daily change in front-month West Texas Intermediate futures and the relative daily return of the S&P Supercomposite Retailing Group versus the S&P 500 Index has lingered in positive territory for more than four months.

"Even though crude oil has been on a tear, retail stocks have been outperforming," writes Neil Dutta, head of U.S. economics at Renaissance Macro Research. "So, the market is basically telling you that the rise in oil prices is (a) probably more about strong demand than a negative supply shock and (b) the rise in oil is not enough to derail the consumer."

The correlation took a hit Thursday, after underwhelming holiday sales reports from Macy's Inc., J.C. Penney Co. and L Brands Inc. sent the shares falling at least 5 percent.

In November, the three-month link between oil and retail outperformance was the most positive since 2002.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh

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