Retail Sector ETFs And Holiday Shopping Season

Retail exchange traded funds have outperformed the S&P 500 by a wide margin this year and recent data show retail sales started the fourth quarter with a gain.

SPDR S&P Retail (NYSEArca: XRT) is up 8.4% year to date, while the S&P 500 is flat. Other retail ETFs include Retail HOLDRS (AMEX: RTH) and PowerShares Dynamic Retail (NYSEArca: PMR).

U.S. retail sales rose 0.5% in October following a 1.1% gain the previous month, the Commerce Department said earlier this week. This is the fifth monthly gain for the retail sector.

“Consumers, which account for 71% of the economy, continue to spend,” said BMO senior economist Jennifer Lee in a MarketWatch report. “That’s great news for growth, but where they’re getting the money to spend is a little concerning.” Specifically, economists worry consumers are tapping savings or buying on credit as wages stagnate.

Retail sales numbers indicate that the economy in the U.S. is growing at 2.5%, the same rate as the third quarter. According to the Associated Press, the inflationary pressures are backing down a bit even though oil prices have risen above $100 a barrel.

“As the economy has rebounded, consumers have continued opening their wallets, with data showing growing consumer spending. There is some question among investors about whether this will continue, and investors clearly should be cautious given the run that [retail ETFs] had in the first half of 2011 and also in 2010 and given some existing issues for consumers regarding tighter access to credit, reduced asset values, still-high unemployment, a still-anemic housing market, and concerns about a global slowdown,” Robert Goldsborough wrote on Morningstar.

“Although consumer spending is not particularly robust, households do continue to spend and provide moderate support for the overall economy,” Steven A. Wood, chief economist at Insight Economics, said.

For retailers, the outlook for the holiday shopping season is mixed, as the need to post deep discounts to keep up with competition can cut into profit margins. “Black Friday” opens the holiday shopping season, when retailers attract shoppers with discounts and free merchandise.

More retailers are opening their doors at midnight or earlier in an increasingly competitive holiday shopping season, the Contra Costa Times reports.

SPDR S&P Retail

Tisha Guerrero contributed to this article.