Walmart, Retail Strong Sales Send Stock ETFs Surging

Investors in retail ETFs received a double dose of good news on Thursday.

First, the world’s largest retailer, Walmart, announced stellar earnings for the second quarter, sending shares of the stock to record highs. Then, the government reported that retail sales in the U.S. rose much more than expected in July, helping extinguish economic growth fears.

The SPDR S&P Retail ETF (XRT) and the VanEck Retail ETF (RTH) gained as much as 4.5% and 2.8%, respectively. 

U.S. retail sales jumped 1% month-over-month in July, according to the latest data from the Census Bureau. That was well above the 0.4% growth that economists had penciled in. 

The news helped ease some of recession worries that had infected markets last week. 

Separately, Walmart announced earnings that beat on the top and bottom line, while updating its sales growth forecast for the year to 4.75%, up from a prior forecast of 4%.

But perhaps most importantly for the retail sector as a whole, Walmart’s CEO was upbeat on the health of the consumer.

“We aren’t experiencing a weaker consumer overall,” CEO Doug McMillon noted, while adding that consumers “want value” and “a broad assortment of items and services.”

Walmart has a more than 8% weighting in the aforementioned RTH, a market-cap-weighted ETF. 

It also has substantial weightings in consumer staples ETFs, like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC), which allocate 10.6% and 8.8% of their portfolios, respectively, to the stock.

On the other hand, the stock only has a 1.4% weighting in the equal-weighted XRT.

While the combination of the strong retail sales and earnings for Walmart lifted retail ETFs, it was also taken as a bullish signal for markets as a whole.

The SPDR S&P 500 ETF Trust (SPY) surged as much as 1.7%, cutting its losses from its July highs to a mere 2.3%.
Last Monday, the ETF closed 8.4% below its highs.