Nike & Lululemon, Precursors for S&P Decline to Multi-Year Low

The chart below depicts the share prices for NIKE (NKE), LULULEMON (LULU).  The path, which the two consumer discretionary products companies have taken to significant declines from their recent all-time highs, is the same that the S&P 500 will take to its multi-year lows.    

As of 7/16/24, the price of a NIKE share had declined by 58.9% from its all-time high and shares were hovering above the 2020 low.  Share price for LULULEMON had declined by 43.6% from the all-time high and is approaching the September 2022 low.  NIKE and LULULEMON are the key leading indicators for why markets will soon begin to sell off and decline to multi-year lows.  The share price action of both are the roadmaps for the S&P 500 to follow to reach new lows.

A new multi-year low for the S&P 500 from its 07/12/24 close would represent a 39% decline assuming the new low is at or below the October 2022 low. Should the S&P 500 decline to at or below the March 2020 low the decline would be 61.3%.   

The probability for the S&P to reach or breach the March 2020 low is high. It’s because the problem which caused NIKE (NKE) and LULULEMON (LULU) shares to decline after reaching new highs is systemic. The problem is now or will soon be surfacing for many of the S&P 500’s member companies. The last time the index faced a similar systemic problem was 2007.    

The systemic problem back in 2007 was that the Financial Services sector including banks and brokerage firms had become submerged with subprime mortgages. I had identified the problem. My article “Have Wall Street’s Brokers been Pigging Out?” was published in the Equities Magazine September 2007 issue. It explained why the five brokers including Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley and Goldman Sachs were on the verge of an epic collapse.  Below is a quote from my article:

“I believe that there will be a day of reckoning. It will be sooner rather than later, and that day will be ugly for the five largest brokers.”

The table below depicts the dates of the 2007 highs and percentage declines @ the 2008 / 2009 for the five brokers named in the article.

For 2007, the leading indicators for a substantial decline for the S&P 500 were Bear Stearns, Lehman and Merrill Lynch. The three had recorded their highs for 2007 by February 2, 2007. Morgan Stanley and Goldman Sachs shares did not peak until six to 10 months later. The three were the roadmaps to follow for the S&P 500’s 58% decline from its 2007 peak to its 2009 trough.  

After reaching their peaks the three brokers began their precipitous declines. As of the date of my September 2007 article they had declined by 21% to 30% from their highs. For the same comparable period the S&P 500 had increased by 6.9%. By November 26, 2007, the brokers shares had declined by 29.4% (Lehman) to 45.7% (Merrill Lynch) from their highs. The S&P 500 did not reach its 2007 high until October 11, 2007.  

The 2007 to 2009 chart for the S&P 500 below includes annotations at the dates for the brokers’ highs. The chart also includes the % declines to lows on the path that the S&P 500 took to its 58% decline to its 10 year (1997) low. The chart also includes the high and the percentage decline for the XLF ETF, the Financial Sector SPDR whose members include banks and brokers.

The above chart depicts:

• S&P 500 did not price in or discount the woes for the banks and brokers.  
• Share price trajectories for the three brokers confirm that they were the leading indicators that could have been used to predict the S&P 500’s decline from its 2007 highs to multi-year lows.   

The chart below depicts the all-time share price highs for Nike and LULULEMON. 

From their all-time highs to July 16, 2024 the share prices had declined by 58.9% and 43.6% respectively.  The chart also depicts the steady uptrend for S&P 500 that began in 2022. 

What caused the share prices of NIKE and LULULEMON to significantly decline during a steadily rising market will soon be inherited by many blue-chip companies.  The Pandemic’s accelerating the transformation of the global economy to digital from industrial was the cause.  The Pandemic created an environment which PULLED consumers from retail stores and into ecommerce sites.

This resulted in a sugar high being created for the growth metrics, profit margins and share prices of the largest and most well-known companies in the world including NIKE and LULULEMON. Both have since been experiencing declines in digital revenue and/or digital revenue growth rates.  More and more blue-chip shares will soon come down from their sugar highs.   

The problem is unfixable because the Pandemic, hopefully a once in a lifetime event, was experienced by the world’s entire population. The shock which caused by the first global Pandemic since the early 1900s resulted in instant and permanent structural changes for the world’s economy. The changes significantly increased the profitability for established businesses which were in the position to benefit. Amazon is a great example. It also spiked the growth rates and profit margins for almost any business that was capable to conduct transactions online. Finally, businesses which were inadept online lost market share.      

After Covid-19 began to quickly spread the U.S. and world stock markets crashed in March 2020. The markets then reversed with the U.S. Indices reaching a new all-time high by the end of 2020. The sudden reversal back to new highs during a not yet ended Pandemic befuddled all and especially professional investors.  

The rationale for the reversal was Covid-19’s accelerating the transformation of the global economy from industrial to digital. The acceleration enabled a global economic depression to be avoided.  It also reduced the timetable for the completion of the global economy’s transformation from industrial to digital by 20 to 30 years.

The transformation to digital has been underway since 1985 when AOL became commercially available. The transformation was responsible for the following major U.S. and world stock market events which have occurred in the 21st Century: 

• 2000 bubble peak.    
• 2020 quick reversal from Pandemic created bottom and back to new highs for major U.S. indices including S&P 500, Dow and NASDAQ  

Based on the research conducted and the findings that are contained in this report, the probability is high that a 2024 bubble peak and an ensuing significant correction for the markets will be added as events caused by the transformation.

My report “Third Transformation for Economy since 18th Century Creating Opportunities to Build Almost Instant Dynasty Wealth” is highly recommended. The report explains how and why an economy that is transforming enables entrepreneurs and their benefactors and/or investors to build immense and generational wealth within their lifetimes.     

My discovery of the economy transformations since the beginning of time evolved from the research that I conducted on UBER, AirBnB, Snapchart and WhatsApp when they were in their formative stages. Research of the four was conducted to possibly identify common traits.  The table below depicts that a $10,000 seed round investment in any of the four from 2008 to 2012 had appreciated to between $16 million and $200 million by 2017. 

https://dynastywealth.com/third-transformation-for-economy-since-18th-century-creating-opportunities-to-build-almost-instant-dynasty-wealth/ 

Another discovery, was that UBER and Airbnb had utilized the same perpetual financing strategy. Without the strategy neither could have grown at the rates they grew at so quickly. Video and report about the perpetual financing strategy is available.  

The common denominators were identified, have been and continue to be utilized to identify startup and early-stage digital disruptors and first movers. The table below depicts four which have been identified. They are utilizing a perpetual financing strategy and are producing and growing revenue. $10,000 investments in each of them at their 6/30/2024 valuations have the potential to be valued for $2.3 to 5.8 million by as early as 2028. 

To receive alerts for when investment opportunities for the companies in the above table become available click here.  

Discovering that the industrial to digital transformation was creating opportunities for the savvy to create immense wealth almost instantly necessitated additional research. UBER had successfully disrupted transportation. AirBnb did the same for lodging. The industries, the first two to be digitally disrupted are among the world’s oldest and largest.  

The table below depicts the transformations for the U.S. economy since the 18th Century. Each of the prior transformations required a minimum of 100 years to full completion. The transformation from agricultural to industrial is a great example.

It began when the construction of the transcontinental railroad was completed in 1869. The 116 years transformation to industrial ended in 1985 when AOL, the first online and email service became commercially available. The table below is from my report entitled: “Third Transformation for Economy since 18th Century Creating Opportunities to Build Almost Instant Dynasty Wealth”.

Based on my research of the prior transformations, I had projected that the complete transformation of the global economy to digital would not occur until 2039. The Pandemic accelerated the transformation. It forced the majority of the world’s population to move online to:

• Purchase consumable products
• Socialize 
• Access entertainment 

Most importantly, the Pandemic enabled the impossible, which was to change the buying habits or behavior of consumers.

PhD and Professor Art Markman, in his white paper “Don’t Persuade Customers — Just Change Their Behavior”, which was published by the Harvard Business Review, explained:

“Most businesses underestimate how hard it is to change people’s behavior. There is an assumption built into most marketing and advertising campaigns that if a business can just get your attention, give you a crucial piece of information about their brand, tell you about new features, or associate their brand with warm and fuzzy emotions, that they will be able to convince you to buy.

On the basis of this assumption, most marketing departments focus too much on persuasion. Each interaction with a potential customer is designed to change their beliefs and preferences. Once the customer is convinced of the superiority of a product, they will naturally make a purchase. And once they’ve made a purchase, then that should lead to repeat purchases in the future.

This all seems quite intuitive until you stop thinking about customers as an abstract mass and start thinking about them as individuals.  In fact, start by thinking about your own behavior.  How easy is it for you to change?

If you are a company, you might think it would be easy to sell this person a solution to their problem. However, it’s not as easy as that – there are deeply ingrained habits here that won’t just go away.”

The most important quote from Professor Markman’s report is below:

“For marketers, this means focusing on how to get consumers to interact with products rather than just thinking about them.”

The Pandemic forced consumers to interact. To survive a consumer had no choice but to interact with, or to utilize, the online platforms of Amazon and Wal-Mart, etc. Consumers began to purchase every-day products including toilet paper which they had exclusively purchased in local grocery, drug and other retail stores for their entire lives. Consumers learned how easy and efficient it was to purchase products online. They now prefer to purchase everything online. Amazon accommodated them and is perhaps the biggest beneficiary for the habits of consumers being changed by the Pandemic.

The Pandemic instantly changed consumer behavior worldwide.  Thus, Covid-19 laid the foundation for:

• • U.S and global stock markets to reverse from their 2020 crash lows and to climb to steadily new highs.  Amazon shares had reached an all-time high in February 2020.  By March 2020 Amazon shares had declined by 16%. Amazon’s share price reversed and roared back to a new record high in April 2020.

• • Ecommerce platforms to take market share from brick and mortar competitors.  Example, Amazon vs. grocery stores. 

• • Largest public companies in the world to increase their revenue and profit margins.

• • Name brand consumer discretionary products companies to increase their digital or direct to consumer revenue as a percentage of total revenue at the expense of their distributors.  

The biggest beneficiaries, other than the largest and well-known digital companies and Wal-Mart, were the name brand companies with discretionary consumer products.  These include the consumer discretionary apparel and accessories products companies with iconic global brands: 

• • Ralph Lauren
  • LULULEMON NIKE
  • NIKE  

The pandemic enabled the above companies to aggressively compete against their traditional distributors. Their extremely valuable brands enabled them to go direct to the consumer. This significantly increased their profit margins. For example, from 2019 to 2024, Ralph Lauren’s gross profit margin increased by 8.6%. For the same period its operating margin increased by 28%.  

The chart below depicts Ralph Lauren’s ecommerce growth rates from 2017 to 2024. After spiking to sugar highs in 2021 and 2022, the growth rates have since declined precipitously.

The valuation for NIKE declined by $28 billion when it reported its financial results for its 2024 Fiscal year on June 28, 2024.  The culprit according to management was NIKE’s E-commerce revenue.  See “Nike Digital sales drop in Q4 as retailer reaches highest-yet annual revenue”, 06/28/24 and “Nike posts its first digital decline in 9 years”, 3/21/24.  

The chart below depicts NIKE’s share price and operating margin reaching five-year highs in 2021.  Both have since declined back to 2019 levels.

The chart below depicts that LULULEMON’s digital revenue as a percentage of revenue spike in 2020 spiked to above 50% in 2020.

The chart below depicts the digital revenue growth rates for LULULEMON from 2018 to 2024.

Foot Locker, formerly a major distributor for NIKE, is among the casualties. When Foot Locker’s revenue peaked in 2020, it had generated 11 consecutive years of revenue growth. Revenue for its 2024 fiscal year was barely above its 2020 record and had declined for its second consecutive year. Foot Locker’s operating margin crashed from 12.9% in 2017 to 1.7% 2024. See “Nike moves away from Foot Locker in shift to DTC”.   

NIKE, Ralph Lauren and LULULEMON are iconic U.S. and global brands. If these brands, the world’s most valuable, can-not sustain digital revenue growth, how can lesser brands increase digital revenue?       

The stalling digital revenue growth problem is not exclusive to the Consumer Discretionary Sector including its Apparel Industry members. Any business that generates revenue digitally or from ecommerce has become vulnerable to digital revenue becoming cyclical.

The chart below depicts Wal-Mart’s E-Commerce growth rates from 2016 to 2024. Wal-Mart’s E-commerce revenue for second quarter of 2020 increased by a record 97%. For Wal-Mart’s last ever reported quarter for its digital revenue, Q-1/2024 its growth rate was 22%. The growth rate declined by 19% as compared to the Q-1 2023 growth rate.

Note. Wal-Mart no longer provides a breakout for the sales it derives digitally.       

The deteriorating digital revenue and related metrics for many of the world’s most well-known and largest consumer discretionary products companies are signaling some or all of the following:   

• • That consumers globally are retrenching
  • Most of the low hanging fruit vis-à-vis the conversion of r consumers to purchase online vs. brick & mortar has been picked. 

The bottom line is that at some point the conversion of consumers to purchase online instead of from brick and mortar stores will be complete.  Companies which benefitted from the Pandemic will have to adopt PUSH strategies to increase or to even maintain the revenue that they generate from digital.  At this point gross and operating margins will then begin their steadily decline to historical levels.   

Given that digital revenue has become mature or saturated the probability is high for the following:

1. Year over Year Revenue growth comparisons will become more difficult. 
2. Profit margins have already or will soon peak 
3. Analysts will reduce earnings estimates after second quarter and first half of 2024 earnings are announced.  

Furthermore, the slowdown that will eventually come for digital will negatively impact three of the largest companies in the world below.  It’s because the rate of growth for businesses to build and maintain ecommerce platforms will slow or decline.  The three compete with each other to provide cloud computing services to businesses.   

• • Amazon
  • Microsoft
  • Alphabet 

The 2007 to 2009 subprime mortgages problem and the Pandemic’s 2020 to 2022 acceleration to the digital from the industrial are eerily similar. Both are systemic. However, the problem of the brokers holding defaulting mortgages, which was the catalyst to cause the Great Recession of 2008, was fixable. It was temporarily solved by the U.S. Treasury’s implementation of the Troubled Asset Relief Program (TARP). The passage of the Dodd Frank Act permanently solved the problem.  

The acceleration of the global economy to digital from industrial and the resultant sugar highs for profit margins caused by the Pandemic is an exponentially bigger problem. Unlike 2008, what the Pandemic caused in 2020 is not FIXABLE. It’s because the structural change to the global economy and especially the dramatic change for consumer behavior can-not be unwound, regulated or subsidized.     

Finally, there are many industries that have yet to fully transform from industrial to digital. These industries will enable the savvy to experience similar gains as were made by those who invested in UBER, AirBnb when they were in their formative stages. To be alerted for when digital opportunities become available click here.      

Another of my core areas of expertise is my research of the stock market being secular since its inception. The table below depicts that the S&P 500 has experienced 8 to 26 years up trends that were followed by 9 to 13 years downtrends since 1921. 

Based on my research, in December of 2021, I proclaimed at a Family Office Club event that the 2009- 2022 secular bull would end in January of 2022. The 2022 to at least 2030 secular bear with a minimum projected decline of 61% based on prior secular bear declines would then begin. The S&P 500 peaked in early January 2022. Since then, the index has been unable experience a year end close (2022 & 2023) that was higher than the 2021 inflation adjusted year-end close. The indicator confirmed that the new secular bear is alive.  

My research of secular markets also enabled by discovery that cyclical bulls have routinely occurred during secular bears. Therefore, the S&P 500’s move from its 2022 low to a 2024 nominal high is a cyclical bull within a secular bear. Educational video about secular bulls and bears is available and is highly recommended. The video also explains the rationale for why blue chips should not be held during a secular bear market.

The Pandemic’s acceleration to digital and the problem that China has with its economy due to it’s changing its economic policy from “OPEN DOOR” to “COMMON PROSPERITY” are big macro and global hurdles. For these reasons, the Secular Bear that began in early 2022 will likely rival the duration of the 14 years duration of the 1968 to 1982 Secular Bear. 

My recommendation is for all investors to deploy a Defensive Growth Strategy. The table below contains the strategy. Per $100,000 deployed is projected to grow to $1,700,000 by 2033.

A video about the strategy is available. SaveChangeWorld.com, for which I am the Director of Research, can provide access to all of the vehicles needed to deploy the strategy.  

My 2007 prediction for the collapses of the five brokers changed my life. Since then my passion has been to research extreme events and then to utilize the findings to develop predictive algorithms. The video below is about the extreme events that I have researched and the algorithms that have been developed throughout my career.

https://share.vidyard.com/watch/e7qkksPyLAV5LShnHMC2d6

The table below contains all of my media verifiable crash predictions.