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Retail ETF Investors Will Look to Upcoming Earnings to Confirm Strength

This article was originally published on ETFTrends.com.

While the retail segment wobbled Thursday on reports of a slump in consumer spending over the holiday season, ETF investors will have to keep a close eye on the sector in the upcoming earnings season.

On Thursday, the SPDR S&P Retail ETF (XRT) was up 0.2% and the Consumer Discretionary Select Sector SPDR (XLY) dipped 0.2%.

The recent retail sales data revealed every major retail category, aside from motor vehicles and building materials, experienced a decline in sales over December - a closely observed month for the year, especially for department stores and other clothing shops, the Wall Street Journal reports. The seasonally adjusted 1.2% dip was the fastest decline since 2009 and was a stark contrast to economists' expectations for a 0.1% rise.

“Retail sales being weak is a concern, but it shouldn’t cause you to bail out of retail stocks completely,” John Buckingham, chief investment officer of the AFAM Division at Kovitz Investment Group, told the WSJ.

“The U.S. consumer has been relatively optimistic and the outlook for jobs and wage growth has improved, so those are all positives,” he added.

Nevertheless, investors will gain a closer look into the fourth quarter results later this month when Walmart (WMT) , Home Depot (HD) and Macy's (NYSE: M) , among others, report earnings results.

Many observers anticipated the strengthening labor market, increased wage growth and depressed gas prices bolstered discretionary spending.

For example, Walmart, which will report results Tuesday, is expected to reveal a 2% jump in sales, partly driven by its online grocery business.

Home Depot is anticipated to post the strongest earnings and sales growth in the industry, with analysts looking forward to a 29% surge in quarterly profits, along with an 11% rise in sales when the home-improvement shop announces its numbers on February 26.

Additionally, while Macy's unnerved investors last month when it cut its outlook, the retailer has pushed through with cost cutting initiatives, like shrinking its lower-performing stores. Investors will be looking for total traffic at its brick-and-mortar stores come February 26 as well.

For more information on the consumer sector, visit our consumer discretionary category.