On an official basis, the bear market ended on Oct. 12, 2022. Therefore, the midweek session where the S&P 500 closed down slightly more than half-a-percent presented an odd backdrop. True, the equities market features a constant ebb and flow. Nevertheless, Wednesday also marked the third consecutive trading session of losses. It then raises the question, is a sentiment pivot underway? And if so, is a recession on the horizon?
Earlier on, the latter question appeared preposterous. Most prominently, the May jobs report showed that the economy added 339,000 new employment opportunities, well above economists’ consensus forecast. In addition, the benchmark S&P 500 has been on a relative tear since the waning days of the prior month. However, all good things eventually come to an end.
On Wednesday, Federal Reserve Chair Jerome Powell put Wall Street in a rather dour mood. According to Barchart contributor Rich Asplund, Powell gave his semi-annual testimony before the House Financial Services Committee in which he reiterated the central bank’s hawkish bias. Essentially, inflation remains stubbornly elevated, requiring a concerted effort to bring consumer prices under control.
In other words, higher interest rates will be needed to address inflation. If so, this framework makes certain companies like Tanger Factory Outlet (SKT) compelling as a real-time barometer of consumer health.
SKT Stock in a Tug of War
A real estate investment trust (REIT), Tanger invests in shopping centers containing outlet stores in the U.S. and Canada. As of May 2023, according to its public profile, Tanger owns 37 shopping centers, comprising 14 million square feet and over 2,700 stores.
Fundamentally, Tanger aligns with the discretionary retail sector. Because of the challenging environment – namely the aforementioned inflation problem – SKT stock might not seem a viable investment. After all, people should be refraining from unnecessary purchases and saving money whenever possible.
At the same time, Barchart content partner Motley Fool recently offered a rational bullish argument for SKT stock. Basically, irrespective of what’s going on in the economy, shoppers love a good bargain. So, if people are going to spend money anyways – and that’s exactly what they’re doing – why not acquire Tanger shares? As well, the article provided some enticing statistics:
Tanger has staged an impressive comeback after the early stages of the pandemic rattled the retail industry. Occupancy is back up to 96.5%, slightly below historical levels but more than 4 percentage points higher than the pandemic year of 2020. Core funds from operations per share is expected to reach $1.90 this year, up from $1.76 in 2021. That's still below pre-pandemic levels, but there are plenty of opportunities to boost the bottom line in the coming years.
Moreover, Tanger seeks to diversify its outlet center footprint, including the integration of food, entertainment and digitally native concepts. On paper, this strategy should help move the needle for SKT stock. Yet over the last five sessions, shares have been volatile.
Why Investors Need to be Careful
Though Tanger might appear enticing on many levels, investors should exercise caution. First, SKT stock represented one of the highlights in Barchart’s screener for unusual stock options volume following the June 21 close. Specifically, total volume reached 1,216 contracts against an open interest reading of 2,236. Notably, the delta between the midweek session volume and the trailing one-month average metric came out to 237.11%.
Here’s where it gets interesting. Call volume managed to reach 1,216 contracts. On the other side, put volume hit 2,236 contracts. This pairing yielded a put/call volume ratio of 1.84, which from a strictly straight reading favors the bears. Of course, one day’s trading in the derivatives market doesn’t tell us everything. However, since mid-March of this year, options flow data from Fintel indicates that bearish transactions dominate SKT stock.
Even more telling, Barchart notes that overall, the assessment among covering analysts sits as a moderate sell. Among six experts, the best rating – yes, the absolute best – is a hold, which half the analysts diplomatically rate SKT as. If that wasn’t enough of a concern, the experts’ average price target lands at $19.70. That’s about a 7.5% downside risk from the time-of-writing price.
Fundamentally, the nuances of the aforementioned May jobs report indicate that the unemployment rate increased to 3.7% from 3.4% in April. Combined with the mass layoffs we’ve seen since last year – particularly for the high-paying technology sector – consumer spending may forcibly decline, irrespective of people’s desires.
To be sure, SKT stock is up over 20% since the January opener. Still, it’s also difficult to ignore that shares stumbled about 4.2% after hitting a possible peak on June 7, when SKT closed at an aesthetically balanced $22.22.
Is this the beginning of a bearish pivot? I can’t say that with absolute authority. However, SKT stock is worth keeping on your radar because it wouldn’t be out of the question if it was.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
