Retail stocks and sector-related ETFs have been enjoying a greater year as strong consumer sentiment helped prop up a once ailing segment of the market.
Year-to-date, the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related ETF on the market, increased 16.9% and the VanEck Vectors Retail ETF (NYSEArca: RTH) advanced 19.9%.
Target Corp (NYSE: TGT) is one of many traditional brick-and-mortar retailers that have been enjoying a strong earnings season. The company revealed its best quarterly results in over a decade and recently hit two record highs since 2015, the Wall Street Journal reports.
“Like others, we’re currently benefiting from a very strong consumer environment, perhaps the strongest I’ve seen in my career,” Target’s chief executive, Brian Cornell, said on an earnings call Wednesday.
TGT makes up 1.3% of XRT’s portfolio and 4.2% of RTH’s underlying holdings.
Rising Consumer Sentiment
The ongoing strength in the U.S. economy has fueled the rising consumer sentiment.
“Wages are up. Employment is up. Interest rates are low. So it’s really a very good economic time for consumers,” Paul Hogan, a portfolio manager and analyst at Fenimore Asset Management, told the WSJ.
Related: 4 Consumer Discretionary ETFs if Spending Keeps Going
The strength in the retail sector this year is a stark contrast in previous years when investors grew concerned over the future outlook of traditional brick-and-mortar stores in face of a rising competition from e-commerce or internet retailers, like Amazon (NasdaqGS: AMZN). For instance, TGT shares plunged 9.7% in 2017, marking its third consecutive year of declines, despite the broad U.S. market rally.
In 2018, though, many brands are being supported by American’s willingness to spend money. Retail sales in July increased by 6.4% year-over-year, indicating U.S. consumers are spending at a much faster pace than inflation due to confidence in the strong economy and recent tax cuts. Meanwhile, the strong labor market has also provided households with more cash to spend.
For more information on the retail sector, visit our retail category.