In a world where online shopping is a dominant force in retail, the sector has been an unlikely source of fuel for the transportation sector as evidenced in the correlation between the Direxion Daily Retail Bull 3X ETF (NYSEArca: RETL) and the Direxion Daily Transportation Bull 3X Shares ETF (NYSEArca: TPOR).
A tailwind of positive economic data from the Commerce Department with retail sales increasing by 0.5% in July has helped to propel the retail sector through the beginning of the third quarter. Retail ETFs like RETL have been the beneficiaries of an extended bull market where consumers are more apt to open their wallets.
That bodes well for retail shops who are expecting a robust shopping season, particularly with regard to back-to-school shopping. Multinational professional firm Deloitte is forecasting that this year’s back-to-school spending will increase by 2.2 percent to $27.6 billion, with the average spending per household rising to $510 from $501 last year, including $112 on school supplies–up from $104 the previous year.
With investor exuberance ready to hop on board the retail ETF train, RETL experienced $14 million in inflows since the beginning of the third quarter. Based on Yahoo! Finance performance figures, RETL is up 23.72% year-to-date and 59.26% the past year. Since May, RETL has climbed above its 50-day moving average, touched down that level in early August and is now back above, which could be due to a boost from the back-to-school shopping season.
Related: Data Bodes Well for Retail ETFs
“The real story behind those encouraging sales numbers isn’t the point of sale, but the promise of consumer demand,” Direxion Investments noted in a blog. “The National Retail Federation’s retail sales report for July confirmed as much, with 2018 sales on pace to increase 4.5 percent over 2017. Further proof of this consumer confidence featured as key talking points in both Walmart and Macy’s earnings results, though Macy’s might have liked to seen a stronger bump.”
Sector strength in transportation has increased in conjunction with retail based on the performance of TPOR. TPOR has rallied 27% since the start of July and is up 4.52% year-to-date and almost 60% within the past year based on Yahoo! Finance.
Furthermore, the transportation industry is poised for growth as a report by commercial real estate firm CB Richard Ellis showed that transportation and warehouse employers are on pace to add 226,000 employees through the rest of this year and next. Between 2013 to 2017, the sector averaged 180,300 jobs created annually.
For more information on the consumer sector, visit our consumer discretionary category.