Retail ETFs Advance After Sales Data

Recession fears took a back seat Friday after data from the Census Bureau showed U.S. retail sales grew more than expected in June. 

Sales climbed 1% in June compared with the month before, outpacing the 0.9% increase the Bloomberg analyst survey projected. On a year-over-year basis, sales were up by 8.4%, according to the data. 

The latest data suggests the U.S. economy might have escaped a second-straight quarter of negative growth in the second quarter. 

GDP contracted by an annualized 1.6% in the first quarter, and some GDP models are pointing toward another contraction in the second quarter. 

The Atlanta Fed’s GDPNow model is currently projecting that real GDP fell by 1.5% in the April through June period, but that doesn’t incorporate today’s retail sales data. On the other hand, the St. Louis Fed’s model, which does include the data, is forecasting that GDP grew by 4.1% in the quarter.  

That’s quite a big divergence. For context, the consensus estimate for Q2 growth from economists is somewhere in the middle—currently around +0.9%. 

Still Growing  

Combined with this week’s data on the U.S. jobs market, which shows no signs of weakness, investors feel more confident the world’s largest economy is still growing. 

That’s good news, considering some market observers had recently opined that the U.S. was already in a recession, an idea that may have gained more steam if June’s retail sales numbers were weak and it looked like we might see a second-straight quarter of negative GDP growth. 

For now, that’s looking less likely, and that’s no doubt a big reason why the U.S. stock market is interpreting today’s data positively. The SPDR S&P 500 ETF Trust (SPY) was last trading higher by 1.8%, while the Invesco QQQ Trust (QQQ) jumped 1.5%. 

Though a stronger economy makes it more likely that the Federal Reserve will continue to hike rates aggressively to try and bring down inflation, that’s better than seeing the central bank hike amid a sharply weakening economy.  

Recession Concerns Remain  

Still, even these solid retail sales figures weren’t enough to completely shake the recession fears that are out there. Despite the positive data, the yield on the 10-year Treasury bond slipped 4 basis points to 2.92%, remaining significantly inverted when compared with the two-year Treasury bond yield, which was last trading down by 1 basis point to 3.13%. 

That’s probably why we aren’t seeing an even stronger bounce in areas that would typically be buoyed by positive news on retail sales. 

The SPDR S&P Retail ETF (XRT) and the VanEck Retail ETF (RTH) were last trading up by 2.3% and 1.7%, respectively, similar to the broader stock market. 

Meanwhile, the two largest online-focused exchange-traded funds, the ProShares Online Retail ETF (ONLN) and the Amplify Online Retail ETF (IBUY), were trading higher by around 2% as well, a move that’s barely enough to register on their long-term charts. 

IBUY 

Census Bureau data showed that retail sales at nonstore retailers—a category primarily made up of e-commerce—rose by 2.2% from May to June, recovering from a 1% decline in the previous month. On a year-over-year basis, nonstore sales were up by 9.6%. 

Follow Sumit Roy on Twitter @sumitroy2