An unexpectedly weak October consumer sales dragged on retail-related exchange traded funds and potentially foreshadowed a slowdown in spending ahead of a typically strong period for the consumer sectors.
On Friday, the Market Vectors Retail ETF (NYSEArca: RTH) dipped 1.9%, SPDR S&P Retail ETF (NYSEArca: XRT) fell 2.9% and PowerShares Dynamic Retail Portfolio (NYSEArca: PMR) dropped 2.6%. Year-to-date, RTH gined 6.0%, XRT declined 7.5% and PMR decreased 3.4%. [Will Holiday Shopping Save Retail ETFs?]
The broader consumer discretionary ETF, Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), which includes a 19.7% tilt toward specialty retail and 16.4% in internet & catalog retail, also retreated 1.6% Friday. XLY advanced 11.8% year-to-date.
Triggering a sell-off in the retail sector, U.S. retail sales increased less-than-expected in October on a surprise dip in automobile purchases, reports Lucia Mutikani for Reuters.
The Commerce Department calculated that retail sales was up 0.1% last month, compared to economists’ forecasts for an increase of 0.3%, after being unchanged in September. [America’s Less Dressed: 3 Factors Weighing On Retail ETFs]
“Even though we continue to expect personal spending to remain a key source of support for economic activity this quarter, this report does point to a very weak start to the quarter,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters.
While many expected cheap gasoline prices to translate into increased spending, the weak sales report suggests that the savings are being used to pay for other necessities, such as higher rents.
Nevertheless, a strong labor market could lead to higher wages and support consumer spending in the fourth quarter.Separately, the University of Michigan’s consumer sentiment index was up to 93.1 in early November, compared to 90.0 in October.
Retail companies were among the most heavily sold off stocks Friday, with Nordstrom (NYSE: JWN) plummeting 16.3% and J.C. Penney (NYSE: JCP) plunging 14.2%.
Nordstrom lowered its projections for the year on Thursday and revealed a disappointing third-quarter after the sale of its U.S. credit-card portfolio, reports Chris Wack for the Wall Street Journal.
While J.C. Penney exceeded analyst expectations Friday morning with better-than-expected quarterly net sales and smaller-than-expected losses, JCP shares still fell off on growing concerns about consumer spending.
J.C. Penney’s quarterly results were “good results, but bad timing,” Deutsche Bank analyst Paul Trussell told Reuters.
Market Vectors Retail ETF
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Max Chen contributed to this article.
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