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Retail ETFs Hit Hard by Soft September Sales

September seems to be a doomed month as it repeatedly ascertained the lost growth momentum in the U.S. economy. First, soft job and manufacturing data and then a weaker-than-expected retail sales report reconfirmed that the impetus had gone astray.

Retail sales (barring autos) dived 0.3% in September, the largest decline since January, and below economists' expectation of a decline of just 0.1%. Though consumers spent on cars and at food joints, sales targeted at e-commerce, general-merchandise stores, home centers, grocery stores, electronics stores and appliances lacked, per the source.

Retail sales barring automobiles, gasoline, building materials and food services dropped 0.1% after 0.2% expansion in August. Overall, retail sales nudged up 0.1% on cheaper fuel prices against August sales which were revised down from 0.2% gain to flat.

As per Retail Dive , hurricane in the Southeast spoilt sales in that region while a soothing weather weighed on fall clothing purchases. Fragile wage growth appears another factor behind this sales slump. Since consumer spending makes up about 70% of the U.S. GDP, this blow to retail sales remains a matter of concern.

This is more so as consumers saved a considerable amount from low fuel prices. But these savings are hardly being spent at stores. This proves that the last recession is still fresh in the memory of consumers, who are extra cautious about loosening their purse strings for discretionary purchases (read: The Complete Guide to Retail ETFs ).

However, autos had a safe journey in September, with sales expanding 1.7% in the month and representing the largest gains since May, per Bloomberg.

ETF Impact

All the three retail ETFs - SPDR S&P Retail ETF ( XRT ), Market Vectors Retail ETF ( RTH ) and PowerShares Dynamic Retail Portfolio ( PMR ) - closed in the negative following the somber retail sales data. Weak earnings guidance from retail-behemoth Wal-Mart ( WMT ) also did substantial damage to the sector. The funds were off about 1%, 2.4% and 3.1%, respectively (see all Consumer Discretionary ETFs here).

While the results surely caught many investors off guard, we should wait for another month before drawing a conclusion on the momentum level in the U.S. economy. After all, the ongoing fourth quarter embraces the all-important holiday season, which is apparently the key selling-season for retailers (read: Top Ranked Retail ETFs Wait for a Holiday Season Rally ).

Plus, with the tentative timeline of the Fed rate hike shifting back to not before early 2016, U.S. consumers will see cheap money inflows for some more months. A few more months of low-rate environment in turn may persuade consumers to spend at stores rather than stuffing energy savings in their bank accounts. Muted job growth is an issue; but probably it's too early to take a call on the fate of retail sales.

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SPDR-SP RET ETF (XRT): ETF Research Reports

PWRSH-DYN RETL (PMR): ETF Research Reports

MKT VEC-RETAIL (RTH): ETF Research Reports

WAL-MART STORES (WMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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