It’s Really All About the Retail Sector Now

09/06/2023

2 minutes read

2023.09.06 04:37

This entire year, retail as measured by the ETF or the Granny of the Economic Modern Family, has underperformed the and .

XRT Daily Chart

Encumbered by higher interest rates, higher prices, higher inflation, higher insurance costs, and a burgeoning credit card debt, we have wondered many times this year if Granny can keep up.

Yet, each time we think Granny or the consumer is done, buying has come in to save that sector from becoming a longer-lasting ball and chain.

Examining the ETF, the top sector with 92.52% of the holdings is in Retail Trade.

Consumer services, non-durables, and distribution services have a much smaller weight.

What is really interesting is that Carvana Co (NYSE:) is now the top stock holding at 3.49% with:

Abercrombie & Fitch Co (NYSE:) 2.07%
American Eagle Outfitters (NYSE:), Inc. 1.89%
Hibbett Sports (NASDAQ:)1.68%
Boot Barn (NYSE:) Holdings, Inc. 1.67%
Signet Jewelers (NYSE:) Limited 1.66%
Ollie’s Bargain Outlet Holdings Inc 1.64%
Lithia Motors (NYSE:), Inc. 1.60%
Kohl’s Corporation (NYSE:) 1.60%
Gap, Inc. (NYSE:) 1.59%

The top 10.

XRT also holds Ulta (NASDAQ:), Target (NYSE:), Kroger (NYSE:), Etsy (NASDAQ:), Nordstrom (NYSE:), GameStop (NYSE:) and Walmart (NYSE:).

That puts the major thrust of the sector into staples with some consumer discretionary exposure.

We like that as it represents the major shopping habits of Americans, or 68% of the GDP.

One could argue that despite the headwinds, the consumer is holding up.

And one could also argue that while true, for how long can that go on?

The definition of recession is 2 quarters of declining GDP. Although we had that in the spring of 2022, the US quickly came out of it by the fall of 2022.

Currently, our GDP is 2.39.

What is great about chart reading is that we can gauge the GDP based on XRT’s performance ahead of the quarterly (and often revised) numbers the government releases.

The XRT chart right now has a few key aspects based on our MarketGauge proprietary indicators.

The Phase-with the return under the 200-DMA (green) while the 50 DMA is above (blue) the phase is distribution.
With today’s action, XRT is holding the 10-DMA (pink)
Calendar Ranges-XRT could not clear above the July 76-month calendar range high (horizontal green line). However, it is holding the July 6-month calendar range low (red line).
Real Motion-XRT’s momentum is weakening after the mean reversion buy signal at the end of August.
Leadership- XRT has underperformed the SPY since early August and continues to weaken against the benchmark.

Put this all together, and we have some key areas that need to continue to hold.

We also have some palpable resistance that, until it clears, means we cannot expect to see a lot of growth in the economy as measured by the consumer.

Should XRT break the July calendar range low, we will once again be talking about the 80-month moving average or the 6–7-year business cycle low.

For now, we are cautious and thinking that the damage from the rapid acceleration of rates and that that acceleration of rates did not help food or energy costs go down. Recession is still very much on the table.