Already floundering for much of this year, the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail ETF, slumped more than 4% last week. That decline sparked debate among some market observers regarding XRT’s credibility as a near-term buy.
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. The broader consumer discretionary sector is sporting a double-digit year-to-date gain.
Last week was XRT’s “worst week since December 2016, but Boris Schlossberg says there is a strong case for buying the most recent retail dip,” reports CNBC. “Yet the economic backdrop could conspire to improve the outlook for the group, says Schlossberg, managing director of FX strategy at BK Asset Management.”
XRT features exposure to the following retail industries: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail, and Specialty Stores.
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.
“The Commerce Department said on Friday retail sales jumped 1.6 percent last month also buoyed by a surge in receipts at services stations, which reflected higher gasoline prices after Harvey disrupted production at oil refineries in the Gulf Coast,” reports Reuters. “Last month’s increase in retail sales was the largest since March 2015. Data for August was revised to show sales slipping 0.1 percent instead of the previously reported 0.2 percent drop.”
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Still, some market observers are leery about the retail space.
“I think there’s a little bit of a trade here between getting away from the ETF, and maybe pick some of the guys that are really badly beat up,” said Max Wolff of Disruptive Technology Advisers in an interview with CNBC.
For more information on the consumer sector, visit our consumer discretionary category.