Retail Stocks Set The Stage For Strong 2021, And Maybe This Leveraged ETF

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

If the past year has illustrated anything about the U.S. economy, it’s that most Americans are still willing and eager to spend their money on necessary or luxury items, even in times of great uncertainty and stress.

According to consumer spending data from the U.S. Bureau of Economic Analysis, personal consumer outlays on goods and services dipped substantially in the second quarter of 2020 as the COVID-19 pandemic shook the world, only to recover to about 2019 levels in the second half of the year. While initial spending data from 2021 has been mixed, with strong January sales mitigated by a pullback in February, analysts remain optimistic consumers will continue to spend as they look forward to a gradual reopening of the economy and continue to work through the two stimulus checks many received in the past three months.

 

This is not, of course, a wholesale indication of the strength of the economy. It is, however, a signal that the retail sector is well situated for a potentially record-setting year as consumers return to some semblance of normalcy with the confidence that a few hundred dollars tend to instill in most people.

That sense of confidence has already translated into strong sector performance, as evidenced by the 100% year-to-date growth in the Direxion Daily Retail Bull 3X Shares RETL, which aims to deliver three times the daily performance of the S&P Retail Select Industry Index.

Given the massive price moves that have occurred in the retail sector, let’s take a look at some of the prevailing factors that have contributed to the ETF’s strength to this point and what catalysts might help the sector continue to outperform.

Strong Demand Helps Traditional Retailers

First and foremost behind the strength in retail is, of course, the huge demand among consumers. And while the government’s figures already illustrate this point, there is a larger picture unfolding around this heightened spending that could ultimately signal an even greater unmet demand.

Quarterly earnings are the first sign of where the state of retail is right now, with Q4 reports from Macy's, Inc. M, The Kroger Co. KR, Target Corporation TGT and a variety of other retailers across an array of specializations topping analyst expectations. The general consensus behind this strong performance is that holiday sales increased more than anticipated.

This sales growth was also noted among retailers who reported mixed earnings results like Costco Wholesale Corp COST and Walmart, Inc. WMT, which both posted positive topline results but came in lower than expected on their EPS numbers. The common refrain in this situation was that factors related to shipping congestion and rising fuel prices served to drag down the bottom-line results.

The same goes for direct-to-consumer brands like Nike, Inc. NKE, Urban Outfitters, Inc. URBN and Lands' End, Inc. LE, which all posted mixed to strong results while pointing to global supply issues and lingering international closures as the main contributor to any lagging segments within their fundamental performances.

Nevertheless, across the board, retailers have issued optimistic guidance for the remainder of the year on the premise that the disruptions caused by the pandemic will slowly alleviate and make room for continued revenue growth.

e-Commerce Grows Despite Shipping Troubles

Although online retailers are even more susceptible to the global shipping issues mentioned above, with higher rates costing some companies millions as a result of delays, e-commerce continues to see steady growth as consumers continue to gravitate to the internet for their purchases.

Tentpole marketplaces Etsy, Inc. ETSY, eBay Inc. EBAY and Amazon.com, Inc. AMZN continue to string along a series of strong quarterly numbers, helped by their robust supply chains and beneficial relationships with transportation and delivery firms. As a result, their stock performance throughout the past year has been largely unchallenged with all three sitting at or near all-time highs.

Meanwhile, specialized online players like Wayfair Inc. W and Carvana Co. CVNA have also emerged as standouts through the past year, with steadily rising revenue prompting year-over-year share price growth of more than 800%.

Money Spends

While the economic physics of the past year has thrown some areas of the market into flux, with many industries still reeling from the COVID-19 fallout, retail is one area that has shown a staggering resilience in its rebound. That’s not only from the effects of the pandemic but also the uncertainty of retail as a sustainable business model in the age of Amazon.

Although the future of retail remains a moving target, the ongoing renaissance in the sector proves that there will be room for a diverse ecosystem of shops and storefronts so long as consumers have the cash to burn.

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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, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.

RETL Top Ten Holdings as of 12/31/2021

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Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

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, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

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Distributor: Foreside Fund Services, LLC.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.