Stock exchange traded funds dropped Friday as Gap (NYSE: GPS) and other retailers were weak on signs that consumers are cutting back on spending and companies are feeling the pinch of rising inflation.
Retail exchange traded funds were down sharply Friday while shares of Aeropostale (NYSE: ARO) and Gap fell nearly 20% after the companies offered weak profit outlooks as they continue to get squeezed by higher input costs. [Retail ETFs Decline]
Gap cutting its full-year outlook on higher sourcing costs pressured ETFs that invest in retail and consumer stocks, which have been building momentum lately. “Management expects product unit costs to be up about 20% in the back half of 2011, and that inflation will likely completely offset any price increases, more dramatically for the value brands such as Old Navy and Outlet,” said BMO Capital Markets in a note Friday. “This confirms our view that Gap lacks the pricing power to offset mounting input costs.” [Gap Outlook Clouds Retail ETFs]
Financial ETFs were slightly lower Friday as investors digested news Goldman Sachs (NYSE: GS) is bracing for subpoenas from U.S. prosecutors while JP Morgan’s (NYSE: JPM) chief executive warned of the consequences of the U.S. defaulting on its debt. Reports Friday that Goldman Sachs expects to get subpoenas related to its mortgage businesses are a reminder that underperforming financial ETFs continue to face regulatory uncertainty. Goldman shares were fractionally lower. [Financial ETFs in Focus on Goldman, JP Morgan]