In what is becoming an ominous theme for the retail space, the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related exchange traded fund, slumped again last week. XRT enters trading this week residing near its lowest levels of 2017 with a year-to-date loss of about 6.5%.
Adding to the concern for an ETF such as XRT is the fact that the broader consumer discretionary sector, which includes retail, is in the middle of its seasonally strong period. In fact, there are another six or seven weeks remaining in the strongest period of the year for the discretionary sector, but XRT is languishing.
“Retailers had been under pressure with the potential for a proposed tax plan by congressional Republicans to negatively impact the group. Such a plan would more heavily tax retailers that source their goods from abroad,” according to CNBC. “However, President Donald Trump said in a recent interview with The Wall Street Journal the tax plan appears “too complicated,” raising uncertainty about its prospects.”
Making matters worse are the struggles of some big-name brick-and-mortar retailers, including Sears Holding (NASDAQ: SHLD), which some retail sector observers fear is on the brink of collapse.
“Investors were shocked on Tuesday when the company that operates Sears said in a filing with the Securities and Exchange Commission that it had “substantial doubt” about its ability to stay in business unless it can borrow more and tap cash from assets. Its stock plunged 12.3% to $7.98 by the time markets closed on Wednesday,” reports USA Today.
Not surprisingly, XRT’s technical outlook is currently murky.
“This fund just recently hit new year-to-date lows and breached the November 2016 “election low” as well. The weakness in retail stocks should be notable in that consumer surveys demonstrate continued optimism in the economy. However, that confidence is not being returned in the share prices of many major national retailers,” according to ETF Daily News.
Other consumer discretionary and retail ETFs have been thriving, namely those with heavy tilts toward e-commerce names.
The trend away from traditional department stores and apparel retailers to online shopping destinations should benefit the Amplify Online Retail ETF (NasdaqGM: IBUY), which debuted last year. IBUY, which is comprised of global companies that generate at least 70% of revenue from online or virtual sales, has been one of the best-performing retail ETFs since its inception.
For more information on the consumer sector, visit our consumer discretionary category.