The Xchange Blog

Retail On Sale Just in Time for Holiday Season

The fourth quarter is typically the most important time of year for retailers. While shoppers are looking forward to a parade of sales, investors in retail stocks eagerly anticipate projections and announcements of which companies showed the strongest year-over-year growth.

Though this seasonal trend is well-known by investors, it’s not unusual to see retailers outperform in November as the holiday season approaches. And that looks to be the case again in November.

After succumbing to the same pressure as most other equities in October, the sector made a comeback at the end of the month. From Oct. 26-Nov. 8 the Direxion Daily Retail Bull 3X Shares ETF (RETL) rallied 30 percent to regain about half its losses.

But that trend has since completely reversed, as the fund has given back all those gains.

RETL Performance
Reatil ETFs Stocks Holiday Season 2018
Data Range: 10/25/2018 – 11/20/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

To figure out what happened let’s go back to the summer, when many retail stocks surged on the back of stellar quarterly financial results. Looking at some of RETL’s top holdings, DSW, Ollie’s Bargain Outlet, Tractor Supply Company, and Express each posted top-line surprises of 2 percent or more (15 percent in the case of DSW). What’s more, the latest per-share earnings from Kroger, Ollie’s Bargain Outlet, NutriSystem, and Foot Locker beat estimates by anywhere from 7 to 11 percent.

Those results alone might be reason enough to expect continued performance from retailers, but further indicators like University of Michigan’s survey of consumers and monthly retail sales figures also shows a confident American shopper. The university’s monthly questionnaire of U.S. consumers’ perspective on their economic well-being has shown a steady uptick to its highest level since 2008, while September retail sales data remained on an uptrend for the seventh straight month in a row at 0.4 percent growth.

However, within those figures are other, more ominous signals that traders may do well to consider when weighing their strategy this winter. While still strong, sales figures are also contending with rising relative prices, rising inflation and those rising interest rates mentioned earlier in addition to persistently anemic wage growth. And, while the UM survey is an inherently subjective measure of consumers’ sense of their own financial wellbeing, the fact that it’s sitting just above where it was before the 2008 crash could make some investors a little anxious.

So, where does this leave us now?

Q3 retail earnings are a mixed bag, as Macy’s, Nordstrom and Dillard’s have all been punished heavily for their reports. It’s clear that the market is feeling a little jumpy, but it will really come down to where the U.S. consumer stands. There’s an argument to be made that the survey is a stronger indication of how much shoppers might be willing to spend than historical figures, particularly in the case of those who might be primed to shop for this holiday season, which is anticipated to break a 7-year sales record.

But there’s also a case to be made the other way. Since late 2017, and arguably since the 2016 election, the market has been relying on tax cuts and deregulation to spur income growth and carry productivity past some costly trade wars. If the trickle-down in the cuts have plateaued, and workers don’t have the cash to throw around that some in the market are expecting, it might just be a longer, colder winter for retail.

Related Leveraged ETFs

 


Each leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Each Fund should not be expected to provide returns which are three times the return of benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
RETL Risks– An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the return of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Daily Index Correlation/Tracking Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, and risks specific to investment in the securities of the Retail Industry. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
 
S&P Retail Select Industry Index (SPSIRETR)  – a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) retail sub-industry. One cannot directly invest in an index.