Retail sales will suffer in the months ahead due to rapidly rising medical and rental CPI.  Whenever rental and medical costs have risen significantly in the past, they have led to a big decline in retail sales.  You can see from the chart below that Medical CPI plus Rental CPI provides a nine month lead on Redbook Same Store Sales.  Consumers will start cutting back spending on non-essential items in order to pay for medical care and housing.

img1Source: Bloomberg and Variant Perception

Retail stocks are highly correlated to the ups and downs of same store retail sales.  As you can see from the next chart, the S&P 500 Consumer Discretionary sector has fallen sharply when rental and medical costs have risen, notably in 2001-02 and 2008-09.

img2Source: Bloomberg and Variant Perception