Here's Why The Rally In Retail ETFs Will Continue In 2H
Zacks Investment Research | Jun 06, 2018 03:13AM ET
The U.S. retail sector is back with a bang with SPDR S&P Retail (MX:XRT) ETF Online vs. Offline Retail: Recent ETF Winners ).
Apart from this, there are some developments in the retail space that are driving stocks and ETFs and will keep those well-poised for the second half of 2018.
Omni-Channel Retailing Gaining Precedence
Omni-channel retailing, which is a combination of e-commerce and physical retail, has been coming to the forefront lately. This section of retailing covers all aspects like brick-and-mortar, mobile-browsing , ecommerce marketplaces and so on.
Notably, several traditional retailers are expanding in the online space. Retail behemoth Wal-Mart (NYSE:WMT) recently bought a just a text message , as part of its omnichannel retail and e-commerce program.
Another traditional retailer Kohl’s Corporation (NYSE:KSS) has also been benefiting substantially from its focus on technology improvement and omnichannel expansion. The company’s online sales surged 20% year over year in the first quarter.
Online Operators Eye Physical Stores
Surprisingly, even e-tailers are eyeing physical stores. The idea is to accomplish a ‘open 50 new stores .
Solid Hiring Calls for Strength
The sector has been recruiting heavily. In May, retailers employed 31,000 heads. Most of the additions (13,000) were at general merchandise stores, while building material and garden supply stores created 8,000 and 4,000 jobs, respectively. In the last year, the sector had created 125,000 jobs (read: 4 Sector ETFs to Profit From Strong May Jobs Data ).
Uptick in Economic Growth
The U.S. economy has been the strongest now since the last recession. The economy grew 2.2% in Q1 and recent estimates call for robust acceleration (which is 3.7% ) in Q2 after a moderate Q1. Meanwhile, unemployment rate dived to an 18-year low, giving consumers confidence to splurge on discretionary items.
Cyclical Nature of the Sector
A pickup in the economy is great for a cyclical sector like consumer discretionary or retail. Such sectors perform better in a rising rate environment that we are witnessing currently in the United States.
Upbeat Earnings
The retail sector came up with strong growth rates in Q1. Earnings of the sector is expected to jump 20.4% in Q1 on 8.7% higher revenues, per the Earnings Trends issued on May 31. The sector is expected to post double-digit earnings growth rates in the rest of the three quarters of this year while revenue growth is expected around 5% to 7.5%.
ETFs in Focus
Thus, if you are bullish on the trend in the retail space, you can play funds like XRT, VanEck Vectors Retail ETF (V:RTH) and Invesco Dynamic Retail ETF (V:PMR) . For gutsy investors, there is a leveraged retail ETF — Direxion Daily Retail Bull 3X Shares RETL .
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