Retail stocks are struggling this year and those struggles are reflected by the SPDR S&P Retail ETF (NYSEArca: XRT). XRT, the largest dedicated retail exchange traded fund, has been in a tailspin in the current quarter and some traders see the group’s misery continuing.
Amazon (NasdaqGS: AMZN) and Dow component Wal-Mart (NYSE: WMT) have recently helped XRT’s rival, the VanEck Vectors Retail ETF (NYSEArca: RTH), perform less poorly than XRT. XRT, an equal-weight ETF, has been plagued by slumping apparel retailers, among other corners of the flailing retail industry.
Related: America’s Less Dressed: 3 Factors Weighing On Retail ETFs
Prior to last week’s Brexit decision, some retail ETFs were showing signs of perking up, but some traders are questioning the veracity of that rally, urging investors to remain cautious lagging retailers until more encouraging signs emerge.
“Whether it was the recent dismal Bed Bath & Beyond Q1 2016 reported results or the Brexit pressuring the major indices, the XRT did break through the $39.95 level on June 27th as expected. Shares of XRT hit an intraday low on this trading day of $39.50, but did not close below $39.95, which is of great significance. Given the backdrop of a significant 6% correction in the major averages, give or take, over the last 2 trading sessions and the XRT closing above $39.95, I would be of the opinion a “dead cat bounce” awaits the ETF. This bounce may prove to recapture $41-$42 a share,” according to a Seeking Alpha analysis of XRT.
[related_stories]However, there are fundamental factors that should buoy consumer discretionary and retail ETFs. For example, the U.S. has been adding about 200,000 new jobs each month for the past two years, a rapid pace not seen since the boom days of late 1990s, and we are now at an unemployment rate of just 5%.
On the other hand, economists and investors waiting on wage growth to catch up to the boom. When the economy is at full employment, wages grow about 3% to 3.5% per year, but wages are only rising 2.5% so far.
Related: Amazon in Focus for Retail ETFs
“Retail sales have even produced declines on several occasions. As such and given the surmounting headwinds for retailing in the United States, I believe that a near-term dead cat bounce in the XRT is a selling opportunity and not a buying opportunity. Shares may become over extended beyond $42 for which may be presented an opportunistic short trade,” according to Seeking Alpha.
For more news and strategy on the Retail ETF market, visit our Retail category.
SPDR S&P Retail ETF
