A Real Rally for Retail ETFs
The very stocks, namely department store operators, that were previously holding back the SPDR S&P Retail ETF (XRT) , the largest dedicated retail exchange traded fund, are rebounding and that could bode well for an extended rally for XRT and rival retail ETFs.
Amazon (AMZN) and Dow component Wal-Mart (WMT) have recently helped XRT’s rival, the VanEck Vectors Retail ETF (RTH) , perform less poorly than XRT. XRT, an equal-weight ETF, has been plagued by slumping apparel retailers, among other corners of the flailing retail industry.
With Amazon being one of the story stocks of 2016, RTH is primed to keep rolling, but XRT is reversing its fortunes for the better thanks to rebounding department store names. That scenario is bolstering the ETF’s technical outlook.
SEE MORE: America’s Less Dressed: 3 Factors Weighing On Retail ETFs
Even as XRT “dipped in early August, on-balance volume held steady. This indicator keeps a running tab of volume trading on up-days minus volume on down-days and it serves as a proxy for supply and demand for shares. Normally, it tracks price action but when it diverges it can yield clues to possible price changes. Money did not flee and that suggests it was a lack of buying rather than worried selling that drove down prices. That’s bullish,” reports Michael Kahn for Barron’s.
There are fundamental factors that should buoy consumer discretionary and retail ETFs. For example, the U.S. has been adding about 200,000 new jobs each month for the past two years, a rapid pace not seen since the boom days of late 1990s, and we are now at an unemployment rate of just 5%.
On the other hand, economists and investors waiting on wage growth to catch up to the boom. When the economy is at full employment, wages grow about 3% to 3.5% per year, but wages are only rising 2.5% so far.
SEE MORE: Amazon in Focus for Retail ETFs
“There still is a problem in the sector in terms of relative performance. The SPDR Retail ETF still lags the broader market for the year despite recent improvement. Conservative investors might wait for a move above intermediate-term resistance at the March high to dispel any remaining doubts,” according to Barron’s.
For more news and strategy on the Retail ETF market, visit our Retail category .
SPDR S&P Retail ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
