Investors may temper expectations for retail stocks and sector-specific exchange traded funds as American consumers keep a lid on holiday shopping.

Year-to-date, the Market Vectors Retail ETF (NYSEArca: RTH) increased 7.6%, SPDR S&P Retail ETF (NYSEArca: XRT) fell 4.1% and PowerShares Dynamic Retail Portfolio (NYSEArca: PMR) dipped 2.4%.

While the retail sector has been rebounding over the past month, Morgan Stanley does not anticipate a jolly season for retailers. The investment bank expects holiday sales growth to slow this year, arguing that while consumers have plenty of cash, they are not that motivated to spend, reports Julie Verhage for Bloomberg.

Morgan Stanley projects a 1.2% growth in sales this year, compared to 2.8% the previous year.

“We expect record levels of liquidity funded by income versus debt, along with further strengthening driven by additional energy savings, home price appreciation as well as the improved buying power of the dollar to continue to support consumer fundamentals,” Morgan Stanley said. “However, consistent with the strong though slowing pace of job gains as well as a rise in stock market volatility, we expect lower rates of spending growth in the fourth quarter.”

The bank’s analysts point to three factors that are weighing on the retail sector’s outlook: Consumers have not been spendign much on apparel and sportswear. The year-over-year comparisons are pressuring sales and gross margins in the fourth quarter. Lastly, forecasts for an unusually warm winter could diminish seasonal winter sales.

RTH covers the 25 largest U.S. companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. Top components include Amazon (NasdaqGS: AMZN) 12.5%, Home Depot (NYSE: HD) 8.25 and Wal-Mart (NYSE: WMT) 7.5%.

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