Retail ETFs In Focus After Monthly Sales Report

by on May 14, 2013 | Updated June 13, 2013 | ETFs Mentioned:

U.S. markets were down yesterday morning even after another strong week in the domestic market, due to the expectations of a negative federal retail sales report. To the surprise of many, April sales were not as bad as expected, but the lackluster report was not impressive enough to inspire confidence in traders. All blame for a low open Monday may not rest with the underwhelming retail sales report; with the Federal Reserve also starting plans to pull back on its bond buying program it is no wonder investors are getting jumpy [see S&P 500 Visual History].

Two new funds from Direxion offer leveraged exposure to the retail sectorU.S. Retail Sales Data Leaves Investors Uninspired

The US Census Bureau report release on May 13th shocked economists, who had predicted the trend of negative returns to continue after March’s dismal numbers. Instead of the -0.3% expected by many, the report showed an estimated $419 billion in sales this April, or a 0.1% growth. Auto dealers had a huge hand in these unexpected returns, with sales up 8% from this time last year. Core sellers, which correspond more closely with the consumer spending component of GDP, also saw a jump in the right direction in April. Consider the trailing six-month retail sales data below [see also Companies Increase Dividends: ETFs To Play]:

Many analysts are now pointing to the relatively strong job reports coming in over the last quarter as the cause of stronger sales numbers and the underlying strength in the US.. economy. Investors however, seemed to be less taken with this notion as many have been waiting for a slump in the market for weeks and these better than expected numbers are still not high enough to indicate market strength.

Retail ETFs Performance Recap

Even after March and April’s underwhelming performance, retail sales have had some strong returns in the past six months, causing Retail ETFs to continue a steady climb in returns. Consider the six-month return of the largest ETF in this sector, the SPDR S&P Retail ETF  (XRT, A), versus the broad U.S. market as represented by the S&P 500:

XRT - Exchange Traded Funds - ETF Price Chart for SPDR S&P Retail

XRT has returned 26.5% since December 2012, for a while even outpacing the general markets in the early spring. In April, however, the S&P 500 saw a huge departure from XRT, as the ETF stayed low to reflect the contraction from March’s sales report while the general market surged forward. With investors now waiting for the bottom to drop out, it would not surprise analysts if XRT and the S&P 500 are matched again by the end of the year.

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Disclosure: No positions at time of writing.