Retail Sales Sustain Winning Momentum: ETF & Stock Bets

U.S. retail sales maintained the wining momentum initiated in September, validating the solid growth momentum in the country. Sales in October grew 0.8% last month sequentially, after an upwardly revised 1% rise in the earlier period and surpassed market expectations of 0.6% growth. On a year-over-year basis, sales grew 4.3% following an upwardly revised 3.2% jump in September.

Higher auto sales were behind this upbeat reading. Sales at miscellaneous store retailers, gasoline stations, non-store retailers and sporting goods and hobby music stores also recorded considerable sales growth. Among the losers, sales at furniture stores and restaurants were down 0.9% and 0.7%, respectively.

Accelerating wage growth can be credited for greater consumer confidence. Notably, the country “extended its record private sector hiring streak in October as wage growth accelerated to its fastest pace since 2009“ as per ft.com.

With upbeat retail sales data, chances of a Fed rate hike in December jumped to 85.8% from 81.1% prior to the release of the data. To make the mood merrier, the preliminary data of the University of Michigan's consumer sentiment for the U.S. jumped to 91.6 in November from a final reading of 87.2 in October, marking the best reading since June. Inflation expectations also increased, especially after Trump win (read: ETF Asset Flow in Election Week).

Market Impact

The market reaction to September retail data was mixed as it strengthened chances of a rate hike this year end. SPDR S&P Retail ETF XRT and PowerShares Dynamic Retail ETF (LON:PMR) were off about 0.4% and 0.1% respectively on November 15, and VanEck Vectors Retail ETF (V:RTH) was up about 0.6%. Odds of a gradual end to easy money inflows and the ongoing earnings releases probably had a mixed impact on those funds (read: How Are Retail ETFs Shaping up For Q3 Earnings?).

Still, we describe below three ETFs and stocks to make the most of the retail momentum and the upcoming holiday season sales.

Amplify Online Retail ETF IBUY

This fund could be an intriguing bet given the forecast of an 11% jump in e-commerce sales this holiday season (read: 4 ETFs & Stocks to Treat You on Halloween and After).

PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (AX:PEZ)

With improving economy and rising inflation, cyclical sectors should do well. The National Retail Federation expects total holiday sales excluding autos, gas and restaurant to expand 3.6% to $655.8 billion, a little higher than the post-recession average of 3.4% since 2009. Also, the International Council of Shopping Centers sees a 3.3% uptick in spending at physical stores against 2.2% gains in sales last year.

PowerShares Dynamic Leisure & Entertainment ETF PEJ

This fund may also prove beneficial for a broader access to holiday season activities (see all consumer discretionary ETFs here).

Stock Picks

We also picked three retail-wholesale stocks on the basis of a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy), at the time of writing. Our chosen stocks are:

Zumiez Inc. (NASDAQ:ZUMZ)

When it comes to sales, this October marked “the strongest month for apparel chains since February.” As a result, this Zacks Rank #2 stock with a VGM score of ‘A’ can be a good pick. The company is a specialty retailer in the action sports industry selling apparel, footwear and accessories.

Stamps.com Inc. (NASDAQ:STMP)

This company is into Internet e-commerce, offering services for mailing or shipping letters, packages or parcels in the U.S. It has a Zacks Rank #1 with a VGM score of ‘B.’

ULTA Salon Cosmetics & Fragrance Inc. (NASDAQ:ULTA)

It is a beauty retailer with a Zacks Rank #2 and a VGM score of ‘B’.

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