June Retail Sales Rejoice: ETFs & Stocks To Bet On

Spreading cheer at the start of Q3, retail sales grew for the third consecutive month in June. Sales rose 0.6% sequentially in June. The gain followed the previous month’s downwardly revised 0.2% rise. June retail sales also beat economists’ forecast of a 0.1% rise. On a year-over-year basis, sales soared 2.7%, gaining steam from May’s 2.5% rise.

Eleven of the 13 key categories exhibited stronger sales in June than the previous month. Sales at building material and garden equipment and supplies dealers (up 3.9%), gas stations (up 1.2%), online retailers (1.1%), miscellaneous store retailers (up 0.9%); sporting goods and music stores (up 0.8%) were among the key drivers.

Furniture and home furnishings (up 0.5%), health and personal care stores (up 0.7%) and food and beverage stores (0.5%) are also worth a mention. Sales, barring automobiles, gasoline, building materials and food services – termed as core sales – rose 0.5% last month following a 0.5% increase in May.

Wage gains may have helped in boosting retail sales lately. Also, a dovish Fed is perhaps acting as a tailwind as a few more months of cheap dollar should boost consumers’ purchases and the investing world. With this and some other upbeat economic reading including Job data, manufacturing numbers and inflation data, market watchers may again start wagering on an earlier-than-expected Fed rate hike.

Will the Momentum be Maintained?

With the University of Michigan's consumer sentiment for the U.S. coming in at 89.5 in July 2016 – lower than expected and less than the earlier-month reading – retail spending may fail to enthuse investors in the coming month (read: ETF Strategies for 2H).

Investors should note that it is the lowest reading since April as “current conditions worsened, the future outlook reached the lowest since September of 2014 and inflation expectations rose.” Notably, monthly consumer price inflation in the U.S. came in at 0.2%, the same as last month and lower than market expectations of 0.3%. The rise was mainly boosted by energy and shelter costs.

Market Impact

However, each of the three retail ETFs – SPDR S&P Retail ETF (XRT), Market Vectors Retail ETF (V:RTH) and PowerShares Dynamic Retail Portfolio (LON:PMR) – lost despite the upbeat retail sales data. Following the release of data on July 15, 2016, XRT, RTH and PMR shed over 0.4%, about 0.6% and 0.3% respectively, though things might improve in the coming days.

Still for those investors who believe in “ the trend is your friend” and wish to ride out the recent retail momentum, the following ETFs and stocks can be of help.

ETF Picks

iShares Edge MSCI Multifactor Consumer Discretionary ETF CNDF

The fund focuses on inexpensive stocks, financially sound and relatively smaller companies. Pure retailing has about 45% exposure while the other corners of the consumer discretionary sector take the rest of the weight (read: Q2 Earnings to Gather Steam: 4 Sector ETFs & Stocks to Play).

Amplify Online Retail ETF IBUY

This new ETF comprises stocks that are into online retailing – one of the surging areas of the space. IBUY even added about 0.6% on July 15 (read: Forget Broader Retail; Bet on Online Retail ETFs).

The Health & Fitness ETF FITS

The fund tracks the performance of companies globally that are positioned to profit from servicing those participating in health and fitness activities. With health and personal care stores displaying an uptrend in the month, a look at this ETF seems reasonable. FITS was up about 0.1% on July 15.

Stock Picks

To choose apt stocks for investors we relied on a few criteria, meaning that the stocks should belong to the retail-wholesales sector, should have a Zacks Rank #1 (Strong Buy) and the top VGM score of “A”.

Beacon Roofing Supply Inc. (NASDAQ:BECN)

This is one of the largest distributors of residential and non-residential roofing materials in the United States and Canada (read: Play the Housing Boom with 3 Sector ETFs).

Dave & Buster's Entertainment Inc. (NASDAQ:PLAY)

The company owns and operates dining and entertainment venues.

The Children's Place Inc. (NASDAQ:PLCE)

This is a specialty retailer of apparel and accessories for children from newborn to 12 years of age.