The recent wave of economic news from the U.S. economy has
been rather dicey for the markets. While the employment
picture disappointed, the minutes of the latest FOMC meeting was
nothing less than 'expected.'
Also, whether or not the present stock market sentiments are
justified by the economic fundamentals remains an open ended
question with the answer slightly tilted in favor of a 'yes'
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Still, any boost in economic data surely does add to the
optimism in the market. On the contrary slack economic data does
cause an initial dip in equities, which in turn provides a buying
opportunity and the dip is bought. Actually the truth is, with
such optimism in the market, it is hard to separate 'good' from
Nevertheless, one such economic indicator is the Retail Sales
Data which is not only considered to be an important piece of
information for retailers, but also for the broader markets. This
is because it help to gauge the value of retail purchases
made, but also gives an idea about the consumption growth pattern
in the economy, which in turn is a vital part of economic
The Retail Sales Data for the month of March '13 is due to
release this Friday, the 12
of April 2013. While last month the data had an impressive growth
of 1.1% posting a solid economic surprise, the outlook for the
current month remains flat. This is primarily due to a slack jobs
market and the impact of higher taxes.
In fact, the expectation surrounding last month's data was
also bleak on grounds of higher taxes and the sequester taking
shape. But, the release surprised everybody with an impressive
reading, causing the Retail
to rally (see
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The three well known ETFs, the
SPDR S&P Retail ETF (
PowerShares Dynamic Retail ETF (
and the new
Market Vectors Retail ETF (
posted serious gains surrounding the release.
In fact, the Retail Sales Data has proven to be a game changer
for the retail companies over the long haul. To visualize the
results we have plotted the historical monthly
seasonally-adjusted retail sales data with two of the most well
known and popular ETFs from the retail space, XRT and PMR (read
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The charts depict the relative monthly movement of XRT and PMR
respectively versus the Retail Sales Data.
Not surprisingly, the trends of the two ETFs seem to be having
a very strong resemblance with the trend of the Retail Sales
Data. The ETFs move in almost total lockstep as the data. Of
course judging its resemblance by visual graphical representation
is of very little value.
We have therefore run a statistical correlation of the retail
ETFs with the monthly Retail Sales Data. The experiment reveals
that XRT, PMR and RTH have a correlation coefficient of 88.52%,
88.64% and 92.49% versus the Retail Sales Data (see
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Not only do these results prove that the retail sector is
heavily correlated to the Retail Sales Data, but also derives an
important assertion-Its is not only about vague sentiments, but
also about the fundamental factors, which are well and truly in
play for this segment.
Therefore, it is prudent to assume that if we witness an
uptick in the Retail Sales Data, we should expect good
gains from the retail ETFs. And if these important figures come
in below expectations or suggest weakness, look for a rough
session in the retail ETF sector to close out the week.
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PWRSH-DYN RETL (PMR): ETF Research Reports
MKT VEC-RETAIL (RTH): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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