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Lackluster Retail Sales May Cool Sector ETFs


The retail sector has been a key component helping power the S&P 500 to fresh all-time highs as the economy slowly improves along with sentiment after the financial crisis.

However, consumer discretionary ETFs were sluggish Monday after the Commerce Department said retail sales rose 0.4% last month, less than economists had forecast. Auto sales and rising gas prices were responsible for much of the increase in overall sales.

Lower-than-expected retail sales are “the latest sign of a slowdown in economic growth that could argue against the Federal Reserve’s plan to start trimming its monetary stimulus later this year,” Reuters reports.

“It provides no additional evidence that the economy is gaining momentum,” said Annalisa Piazza, a senior economist at Newedge Strategy, in the article. “It doesn’t allow the Fed’s chairman to have a firmer tone as the U.S. economic recovery remains gradual.”

Consumer spending powers about 70% of the U.S. economy. Consumer discretionary and retail ETFs have been strong performers in recent years as confidence gradually improves. [Consumer Discretionary ETFs Still Crushing the S&P 500]

ETFs for the category include Consumer Discretionary Select Sector SPDR (XLY), Market Vectors Retail (RTH) and SPDR S&P Retail (XRT). [Consumer ETFs: Staples vs. Discretionary]

Monday’s data suggests consumer spending “may take time to accelerate as Americans stay frugal and rebuild savings,” Bloomberg News reports. “At the same time, cheaper borrowing costs, household wealth backed by home and stock prices and an improving job market are helping sustain demand for big-ticket items such as motor vehicles.”

“The consumer was less engaged in the second quarter,” said Russell Price, senior economist at Ameriprise Financial, in the story. “The numbers are disappointing in comparison to expectations but the overall picture is still encouraging” given job growth and improved household balance sheets, Price added.

Market Vectors Retail ETF

The opinions and forecasts expressed herein are solely those of John Spence, 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.