U.S. retailers face two key issues as they try to claw their way back from the market's March bottom, according to trader Boris Schlossberg.
He made his comments after shares of Kohl's rallied on an upgrade from Bank of America analysts, who said the department store chain displayed "superior reopening trends" versus its peers and was set to peel away from the pack. The stock closed nearly 9.5% higher on Wednesday at $22.22 and was flat in Thursday's premarket session.
While he saw "a lot of potential" for Kohl's, Schlossberg, who is managing director of FX strategy at BK Asset Management, was still concerned about some headwinds for the sector.
"There are a couple of key dangers that I think everybody's underestimating, and this goes for almost all retail at this point," Schlossberg told CNBC's "Trading Nation" on Wednesday.
"One is that Covid cases go catastrophic now in all the Southern states, especially Texas and Florida. If that happens, we may very well have a second lockdown and all those stores have to get closed," he warned. "Another thing the market's completely underestimating is the fact that the market is just being very complacent about the fact that the second stimulus package is not happening because of partisan bickering. And even if it does happen, it may be too little, too late."
Because the government's first stimulus package was so sweeping — and beneficial to the consumer on account of the stimulus checks — Schlossberg worried that if a second package comes up short, it could crush consumers' willingness to spend.
"That stimulus package that we had at the beginning was huge as far as the return to the consumer," he said. "So, to me, it's going to be very, very important to see what happens in D.C. as much as what happens on Wall Street here at this point when it comes to retailers."
Craig Johnson, senior technical research analyst at Piper Sandler, pointed out that online and discount retailers have outperformed brick-and-mortar names since the March lows and said Kohl's has found itself on the wrong side of the trade.
While Kohl's is up about 13% since the March bottom, Macy's is up just 1.5%, Nordstrom is down more than 6% and Dillard's has fallen almost 30%. TJMaxx parent TJX Companies is up over 24% and the S&P 500 has gained 33%.
"There is no indication when I look at the charts that there is a trend change starting to happen," Johnson said about Kohl's in the same "Trading Nation" interview.
"It's lagged off the lows of March. We have not reversed a downtrend. We haven't even gotten back to a 200-day moving average," he said. "From my perspective, I think there's a lot of other, more attractive stocks that we should be focusing on at this point in time, and I would just call this a relief rally and would probably move on and buy other names."
Schlossberg disagreed, calling Kohl's "the best pick" in the brick-and-mortar space for its execution, software advantage and ability to acquire former J.C. Penney customers after that company's bankruptcy filing.
But Johnson had his eye on another top name.
"I'm going to stick with the Amazon chart. It's breaking out. It's making new highs in here," he said. "I like the chart. I'm a buyer of the stock still."
Amazon shares climbed 1% in premarket trading on Thursday.
Disclosure: Piper Sandler is a registered market maker for Amazon.
