Investor's Business Daily, March 20th, 2007
Retail store sales have been weak, but ETFs that track retail stocks remain relatively strong.
U.S. retail and food service sales in February ticked up 0.1% from January and rose 3.2% over February 2006, the U.S. Commerce Department reported this month. Catalog and Internet retailers (or nonstore retailers) climbed 9.1% over the same month last year.
Companies blamed the sluggish growth on cold weather keeping shoppers away from stores.
"Unfavorable weather held back retail sales in February, but fewer job gains during the month and fading housing wealth are also clearly imposing some constraint," according to economist Aaron Smith of Moody's Economy.com.
The University of Michigan consumer sentiment index also signals shopping fatigue. The index slipped to 88.8 -- its lowest level in six months -- at the beginning of March from 91.3 last month.
These indicators may not bode well for the overall economy since consumer spending makes up two-thirds of economic activity.
Equally Weighted
The strongest retail ETF, SPDRs S&P Retail XRT, has returned 4% year to date and 14% the past 12 months vs. -1% and 9% for the S&P 500 as of Tuesday.
The ETF tracks the retail sector in the S&P Total Market Index. Each of its 65 stocks accounts for 1% to 2% of the equal-weighted index.
SPDRs S&P Retail sank below its 50-day moving average along with the general market indexes. It has been consolidating at a previous support level in the low 40s.
Systemax SYX dragged down the ETF Tuesday after reporting that Q4 operating profit and gross margin declined because of price discounting for computers and consumer electronics products. The online and catalog electronics seller dived 20% intraday on its largest volume in five months.
PowerShares Dynamic Retail Portfolio PMR includes 31 stocks that are screened for "fundamental growth, stock valuation, investment timeliness and risk factors."
PowerShares Dynamic Retail is also consolidating below its 50-day moving average in the high teens to low 20s. Some of its largest holdings -- Kohl's KSS, AutoZone AZO, Nordstrom JWN and Men's Wearhouse MW -- sport the highest rankings in their IBD industry group on Stock Checkup at investors.com.
Market-Cap Weighted
Retail HOLDRs RTH is heavily weighted in Wal-Mart WMT, which accounts for 16.7% of assets.
Wal-Mart has been slowly stair-stepping downward the past seven years.
Retail HOLDRs has the weakest Relative Strength and Accumulation/Distribution Ratings of the three retail ETFs.
The basket of 18 issues holds the largest retail stocks in the U.S. It includes department, grocery, drug, clothing, home improvement and electronics stores, as well as Internet giant Amazon.com AMZN.
Copyright 2007 Investor's Business Daily, Inc.
