It is holiday shopping season and for many investors, that is all the explanation needed for why the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related ETF on the market, jumped more than 5% and why the benchmark retail ETF is up more than 12% over the past month. However, there could be more to come for XRT and rival retail ETFs.
Another side of the coin is that some retailers still face a challenging environment. Analysts expect stores will struggle to sell winter merchandise and deal with excess inventory as they add new items for the season, which could cause more discounts and promotions, dragging on store margins.
Moreover, it’s not just brick-and-mortar retailers under pressure. Online retailers are also suffering. Adobe found that online retailers lost out on about $800 million in expected sales from the beginning of November through November 14 due to changing spending habits, writes Daniel B. Kline on Fox Business.
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.
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. The ETF’s exposure to traditional department stores is light.
With Amazon being one of the story stocks of 2016, RTH is primed to keep rolling, but XRT is reversing its fortunes for the better thanks to rebounding department store names. That scenario is bolstering the ETF’s technical outlook.
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“The consumer discretionary sector has lagged the market this year, turning out the third-worst performance among the 10 sectors that were around at the beginning of 2016, but one technical analyst sees a big reversal in the cards,” reports CNBC.
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 under 5%.
“What we see here is that for the better part of the year, the consumer has actually been quite discretionary, as the group has been lagging. But now, as the year unfolds, we see this very bullish breakout,” Ross, head of technical analysis at Evercore ISI, said Thursday on CNBC’s “Trading Nation.”
For more news and strategy on the Retail ETF market, visit our Retail category.