U.S. retailers and the exchange traded funds (ETFs) that track the sector have seen a nice rally for 2009. But the question is: can it continue?
No one can predict the future, but we can certainly look at what’s happening now. While SPDR S&P Retail (XRT) is down in early trading today, the recent trend has been up. Over the past few days, the sector has been moving in tandem with the overall market, dropping a few points on Monday and then gaining it back the next day. The reason behind the sector’s volatility is the diversity of companies that it tracks.
The driving force behind the sector’s decline is its allocation to department stores. Last week, Standard & Poor’s lowered the department store group’s credit ranking on concerns that the global recession will hit department stores even harder than previously anticipated. This news took its toll on big retailers such as Macy’s (M), Nordstrom (JWN) and J.C. Penney (JCP), sending shares down 9.5%, 7% and 5.6% respectively, states Andria Cheng of The Wall Street Journal.
The good news, though, is that as one person’s loss is another’s gain. As these big-time retailers suffer, discount retailers continue to prosper and keep the sector afloat. The aforementioned combined with the overall change in consumerism has enabled many discount stores that we don’t always think about to make their own mark on the overall economy.
Sure, we all know that Wal-Mart (WMT) will prosper in a down economy, but what about companies that offer cheap forms of entertainment? Take for example, DVD-by-mail pioneer Netflix (NFLX). The company offers a cheap DVD rental service, which has flourished during this recession, reports Michael Liedtke of Business Week. To top it all off, the company released its first-quarter earnings after the bell today, which showed growth in revenues and subscriber numbers. Let’s hope that the company can continue to outperform and help the retail sector stay alive.