Solid Retail Sales Data Lifts ETFs

May 18, 2022

Investors’ concerns about a recession eased on Tuesday after data showed that retail sales grew at a brisk pace in April.  

According to the U.S. Census Bureau, retail sales jumped by 0.9% month over month, just slightly under the 1% that economists were expecting. Excluding sales of automobiles and gasoline, sales grew by 1%, outpacing the 0.7% consensus estimate.  

On a year-over-year basis, April’s retail sales represented growth of 8.2%. 

Meanwhile, retail sales figures for the previous month were revised higher. Headline sales increased by 1.4% month over month in March, while the ex-autos-and-gas figure rose by 1.2%. 

Beneath The Headline 

The latest data on retail sales helped the U.S. stock market pull further away from the brink of a bear market. Last week, the S&P 500 closed more than 18% below its all-time high, while on an intraday basis, it fell 19.6% below its highs. Many market participants consider a drop of 20% or more a bear market. 

Following its rally on Tuesday, the index is a more comfortable 15% below its highs, though it’s very much still in correction territory, with worries about inflation, interest rates and geopolitics front and center. 

At least for now, an imminent recession is not something investors have to worry about. The latest government data showed broad-based strength in retail sales, suggesting consumers are weathering higher prices just fine.  

Year-over-year growth in April was 19.8% for restaurants, 8% for clothing stores, 0.8% for furniture stores and 12.7% for nonstore retailers (mostly e-commerce). 

ETF Implications  

The strength in retail sales gives the Federal Reserve room to hike rates without necessarily pushing the economy into a recession.  

That’s encouraging news for the economy at large and stocks in general, and is why broad market ETFs like the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) rose on Tuesday. 

It was also great news for narrower ETFs focused on retailers specifically. The three-biggest retail-focused ETFs—the SPDR S&P Retail ETF (XRT), the ProShares Online Retail ETF (ONLN) and the Amplify Online Retail ETF (IBUY)—gained 2.2%, 4.6% and 3.7%, respectively.  

On the other hand, the fourth-largest ETF in the category—the VanEck Retail ETF (RTH)—underperformed, with a 0.17% loss.  

In contrast to IBUY and ONLN’s focus on e-commerce, and RTH’s spread-out, equal-weighted portfolio, RTH holds a concentrated basket of 25 mostly brick-and-mortar retailers. 

On Tuesday, its third-largest holding—Walmart—was hammered after announcing weaker-than-expected profits. The company said that high inflation would pressure its margins, causing the stock to fall by 11.4%, its worst single-day decline in 35 years. 


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