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Our proprietary tracking models indicate the U.S. economy in Quad 3 (growth slowing, inflation accelerating) for the next three quarters.

As Hedgeye’s veteran Retail analyst Brian McGough explains in the clip above, that’s a bad spot to be in for retail stocks with sales currently under-growing inventories.

“We’re in the wrong place right now, and retail earnings season hasn’t even started yet,” McGough explains.

“Retailers are going to have to take it on the chin. They’re going to have to clear their back room. They’re going to have to take discounting.

That’ll be a gross margin hit, which will just be another profit pressure that retailers are seeing that they absolutely don’t need right now because growth is slowing.”

Watch the full clip above for more, including an explanation of McGough’s process.

Quad 3 = Short Retail - real time alerts