Weak home prices, high unemployment, and low economic growth are just a few of the reasons that consumer confidence has been sinking as of late, leaving many to feel very gloomy over the near-term economic outlook. With no end in sight to many of these problems, many consumers have closed their pocketbooks on discretionary spending, opting to hold-off until the economic picture is more certain. Yet, oil prices have begun to fall in the last few weeks thanks to moves by the IEA and a stronger dollar, potentially helping to make many lower-end consumers feel just a little bit better about the current economic situation. However, we won’t know for sure until the release of the Conference Board’s consumer confidence report for June, which is released later today.
This report is one of the more widely-followed ones in the consumer sector as it has the largest polling sample of any consumer confidence measure. However, since the survey polls an entirely new group of people each month, it is often considered more volatile and can experience large swings on a month-to-month basis. Furthermore, unlike the University of Michigan survey, it should be noted that this reading only looks at expectations over the next six months, giving it a decidedly short-term focus [see all the Retail ETFs here].
Analysts expectations are across the board with some expecting a modest increase from 60.8 up to 61.0, while others are looking for small decline, down to 60.3. Thanks to this divergence and difference of opinion, no matter what the figure actually turns out to be, it could move markets. Nevertheless, the recent history of the figure isn’t great; although it has beaten expectations in three of the last five releases, the trend is certainly on a downward trajectory, having fallen from 70.4 down to 60.8 in the span of three months. As a result, this could be a key month for the figure that either breaks the recent trend, or continues its slump closer to the high 50′s.
Thanks to this key data release, investors should look for the SPDR S&P Retail ETF (XRT) to be today’s ETF to watch. This popular fund tracks the S&P Retail Select Industry Index which represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is an equal weighted market cap index and in total, the fund includes about 92 firms with close to 30% going to apparel retail, 15% to specialty stores, and close to 12% in automotive retail. This lack of focus in any one sub sector of the retail market ensures that XRT captures the reaction to the survey from a broad perspective, allowing analysts to ascertain how the retail sector at large views the report [see more on XRT's fact sheet].
Despite weakness in the report as of late, XRT has managed to trend higher, gaining close to 8.2% so far this year and 5% in the past two weeks alone. Yet this could all change with the release of the report later today as a further decline would signal a nearly 10 point drop from the figures’ highs for the year, potentially leading to a sell-off in XRT. If, however, the figures rise above expectations thanks to lower gas prices and this impact on lower-income consumers, investors could see XRT finish the day on a strong note, further adding to its gains for the year [see charts of XRT here].
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Disclosure: No positions at time of writing.