Solid Holiday Shopping Season Props Up This Retail ETF

The holiday shopping season ended better than expected according to numbers from the CNBC/NRF Retail Monitor for the month of December. Meanwhile, the Direxion Daily Retail Bull 3X ETF (RETL) propped up about 8% within the past month.

For the past few years, the prevailing narrative has been inflation and the Federal Reserve’s fight to keep consumer prices under control. In 2024, the expectation is that the Fed will be cutting rates soon. But as CNBC reported, there’s the opposite issue that’s lurking in the background now — deflation.

“Goods prices, less food and energy, have fallen for six straight months,” reported CNBC. The report noted that prices are also “down 3.7% at an annualized rate from June through November.”

While this is certainly welcome news for the consumer, deflation poses a potential threat to retailers. That’s especially so for publicly traded companies that need to churn a profit and appease investors. Wage growth has been outpacing inflation as of late, so this presents a new wrinkle in the economy to start 2024.

“Wall Street is monitoring how retailers are managing profit margins amid deflation and whether they can be as profitable with falling prices as they were with rising prices,” the report said. “At issue is whether retailers can control costs and if input prices are falling faster or slower than selling prices.”

‘Good, But Not Great’

The retail numbers are to be lauded given the current macroeconomic environment. But they weren’t great according to the referenced CNBC report. November and December should traditionally see higher shopping numbers compared to other months given that the holidays are in full swing. But other months were actually stronger than expected; namely, January and October.

“For the two critical months of the holiday season, November and December, the Retail Monitor rose 3.7% and core retail gained 3.3% making it a good, not great Christmas,” the report added. “But last October and January surprised with stronger gains than either November or December, suggesting the full holiday shopping season could be longer than it has been traditionally.”

Final retail numbers should release in February. So traders looking for a potential opportunity to maximize their bullish notions should keep RETL in their toolbox. The leveraged fund seeks daily investment results of 300% of the daily performance of the S&P Retail Select Industry Index. That is a modified equal-weighted index designed to measure performance of the stocks comprising the S&P Total Market Index.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.