2 ETFs To Play Retail Sales Data

While the summer doldrums have seen stocks slowly grind higher, many investors are looking ahead to key economic data that may provide clues as to the next move in equities.  The relative dearth of major releases this week has everyone’s sights set on May retail sales data, which is scheduled to be released Thursday morning.

The consensus estimate for retail sales in May is a gain of 0.70% after April’s relatively modest 0.1% increase.  An actual reading that meets or exceeds those estimates will likely put consumer discretionary and select retail ETFs back in the spotlight after playing catch up last month.

While major indices such as the SPDR S&P 500 ETF (SPY) have recently broken out to new highs, the retail sector has significantly lagged the broader market.  Fears of overheated spending coupled with a pullback in risk appetite have combined to weigh on the returns of these cyclical stocks.

One look at the Consumer Discretionary Select Sector SPDR (XLY) is all it takes to see that this sector is just barely inching back into positive territory for 2014.  In addition, the price of XLY is nearing its March peak which may provide a level of resistance if new retail data does not support an extension of this recent move.    

The SPDR S&P Retail ETF (XRT) is another important index that will be closely watched this week as well.  XRT has nearly $600 million invested in over 100 apparel retail, department store, automotive retail, and internet companies.  Top holdings include well-known brands such as Dillards Inc (DDS), Big Lots Inc (BIG), and Supervalue Inc (SVU). 

XRT has several underlying stocks in the small and mid-cap arena, which makes this ETF more sensitive to market machinations and economic releases. 

Another surge in retail spending may be just what the market is looking for to defy expectations of a pullback and continue this run higher.  However, disappointing data could ultimately rain on the rally parade and send investors scurrying for the safety of defensive sectors.