It’s Make or Break for Retail ETFs

January 6th at 11:00am by Tom Lydon

Holiday sales were the strongest in years, but even so, they were disappointing to those who had forecast far more. It may not necessarily be a bad harbinger for retail exchange traded funds (ETFs) this year, though.

In the third quarter, holiday revenue at stores rose 3.8% over a year earlier. That’s the biggest increase since 2006, when sales jumped 4.4%.

The Associated Press says there were two contributing factors to the disappointing figures:

  • The East Coast blizzard put a damper on sales in the week after Christmas.
  • All those deals to get people to shop earlier worked – they did, but retailers paid for it later in the season.

Retail spending is at a fork in the road this year. Much of the sector’s success and continued growth depends heavily on sustained economic growth and, even more importantly, job growth. According to Ruth Mantell for MarketWatch, a few of the issues consumers will have to stare down in 2011 include:

  • A weak housing market that doesn’t look like it has hit a bottom yet. Home prices[Retail ETFs Have A Holly Jolly Christmas.]
  • Unemployment, which surged to 9.8% in November. Tomorrow, December’s numbers will come out. [There Is No Chill In Retail ETFs.]
  • The tax cut extension, which should put a little bit of extra cash in consumers’ wallets and, one hopes, lead to spending.

Despite the economic struggles of the last year, retail ETFs like SPDR S&P Retail (NYSEArca: XRT) and Vanguard Consumer Discretionary (NYSEArca: VCR) held up quite well in 2010, gaining around 30%. If the economy continues to move forward, 2011 may well be another strong year.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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