Friday’s ETF To Watch: SPDR Retail Fund (XRT)

by on December 10, 2010 | ETFs Mentioned:

December started off with promising results, as markets surged to their highest levels seen since May as the Dow hit the 11,400 mark. Meanwhile, gold rallied to hit a historic high, well above the $1,400 per ounce mark, only to fall back in recent trading days. But as December rolls on, the initial push equities made seems to have lost steam, as markets can’t seem to shake their horizontal trend. Now, a proposal to extend the Bush era tax-cuts has Wall Street on the edge of their seats, as an extension of this legislation would mean higher growth and consumer spending, but it would also increase an already overwhelming deficit. However, Congressional Democrats appear less than thrilled with the plan and are demanding changes before signing off on any such deal. As a result, equities look to continue to struggle to break into any kind of definitive trend, leaving investors to focus on key data to push markets one way or another [see also Judgment Day For Retail ETFs].

Today, the University of Michigan will be releasing their consumer sentiment results, more popularly known as consumer confidence. This figure is an index that is published on a monthly basis by the University and it attempts to shed light on how confident the average American is in our economy. The result is based on a series of telephone interviews (with a minimum of 500 participants) which asks 50 core questions, and then generates a number based on the answers given. The questions focus on how the interviewee views their personal financial situation, the general economy in the near term, and the general economy in the long term. The consumer confidence index has a baseline figure of 100, but has not been above that figure for over five years [see also What Cotton’s Surge Means For ETF Investors].

Last month’s consumer confidence result came in at 71.6, well below the baseline, but this month is expected to make a slight jump up to 72.0. While this is not a significant increase, it suggests that the average American citizen slowly regaining their confidence and faith in U.S. markets and the economy as a whole. If this result comes in as expected, equities could experience a strong day, but if this report misses its predictions, markets could slide [see also Direxion Launches Four New Leveraged ETFs].

With this economic indicator on tap, today’s ETF to watch will be the SPDR S&P Retail ETF (XRT). This fund tracks an equal weighted retail index, that includes a large number of all-US retailers, from small to large cap companies. Major holdings in this ETF include Ann Taylor, OfficeMax, and Netflix. XRT, the second largest ETF in our Consumer Discretionary Equities ETFdb category, has returned over 30% in 2010 while paying out a dividend of 1.2%. Being in the retail sector of the market, this ETF will be particularly linked to the consumer confidence result, as a surge in sentiment is highly correlated to greater consumption levels which could offer a boost for the whole sector.

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Disclosure: No positions at time of writing.