Shoppers appear to be penny-pinching, and this drop in consumerism is affecting retail focused exchange traded funds (ETFs) and Wall Street.

December presented a 0.4% drop in retail sales, ending the weakest retail sales season since 2002. This also underscores the possibility of a recession on the horizon. Jeannine Aversa for the Associated Press reports that Tuesday’s Commerce Department report showed a drop in retail sales, the worst since June, when sales dropped 0.8%.

Is household spending enough to keep us out of a recession? On Wall Street, retail-related stocks tumbled after a dismal sales report and a disappointing quarterly report from Citigroup. The odds of the country falling into recession have grown, and the biggest concern is that consumers will continue to be frugal. Higher food costs, rising energy prices, falling confidence, tightening credit and dropping property values are all adding to our concerns.

At midday, many of the retailers are up on an otherwise not-so-positive day for the market. Among the retail ETFs that could be affected if the current down-trend continues:

  • Retail HOLDRs (RTH), down 7.9% year-to-date
  • PowerShares Dynamic Retail (PMR), down 11.2% year-to-date
  • SPDR S&P Retail (XRT), down 13.3% year-to-date


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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