Until recently, retail stocks and the SPDR S&P Retail ETF (NYSEArca: XRT), the largest dedicated retail exchange traded fund, were lagging even as the broader consumer discretionary performed pretty well. Recent earnings reports from department stores, previously viewed as a drag on the retail space were better or less bad than expected, which prompted traders to bid those stocks and XRT higher.
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. That thesis will be tested today with the delivery of the July jobs report.
Last Friday, “JCPenney said that it lost 18 cents per share in its most recent quarter, down from 38 cents of red ink in the year-ago period. On an adjusted basis, JCP lost just 5 cents per share to clear expectations of a 15-cent loss,” according to InvestorPlace.
JCPenney and shares of Nordstrom surged last Friday, helping bolster shares of XRT.
Nordstrom “said it earned 67 cents per share on revenue of $3.65 billion during the quarter. Analysts expected Nordstrom to earn 56 cents per share on sales of $3.68 billion. Though it should be pointed out that those numbers are below the year earlier period when JWN earned 93 cents a share on sales of $3.7 billion,” reports InvestorPlace.
Importantly, it appears as though fundamentals and technicals for XRT are improving in unison.
“XRT has been on fire since early July, as many retailers beat earnings expectations this quarter. What has yet to be determined is whether XRT can break penultimate resistance formed in late 2015 and again in April/May of this year. If it can, then a run back to ultimate 2015 highs could be targeted,” according to See It Market.
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Recent bullishness in retail names is also helping broader discretionary ETFs such as the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY).
“XLY is currently breaking to new highs, clearing the highs from the end of 2015 after testing the penultimate highs from Summer 2015 and April/May of this year, holding above shorter and longer term trends,” adds See It Market.
For more news and strategy on the Retail ETF market, visit our Retail category.
SPDR S&P Retail ETF