Thursday witnessed a "smackdown" of sorts. All ten of the major U.S. economic segments experienced big-time losses. What’s more, ETFs tracking European and Asian indexes faced even larger sell-offs.

Many would say that a profit-taking pullback was reasonable… if not overdue. I would agree. Many more are suggesting that there’s more short-term weakness to come. On that point, we’ll need to see how investors respond to events and data that follow the Memorial Day holiday weekend.

That said, one sub-sector bucked the widespread market movement today; in fact, retail stocks actually gained ground.

The PowerShares Dynamic Retail Portfolio (PMR) picked up .60% and the Retail HOLDRs Trust (RTH) gained .33%. Year-to-date, however, retail has lagged both the overall market and most sectors in the U.S. economy.

RetailThe question remains, though. If technology, utilities, materials, financials, energy, and even the consumer discretionary sector where retail is a sub-segment… if all of these segments essentially fell 1% today… what was the attraction of retail stocks?

The answer might be found "under the hood." For instance, two of the largest holdings in the Retail HOLDRs Trust (RTH), Wal-Mart and Home Depot, account for nearly 30% of RTH’s movement. Home Depot gained ground on the news that new home sales in April were the best that they have been in 14 years. (Prices may have dropped, but sales were robust.) Meanwhile, Wal-Mart was the beneficiary of gaining the right to distribute Dell computers.

In truth, it’d be a bit too early to give the nod to investing in retail baskets like PMR and RTH just yet.  Best Buy, Kohls, the Limited, the Gap, Target — each of these companies have to contend with a Federal Reserve’s unwillingness to lower interest rates and summertime gasoline prices near record highs.

That said, if retail’s one-day victory developed into a longer-term trend, the best way to capture the advance would be with an ETF basket. The PowerShares Dynamic Retail Portfolio (PMR) has the advantage of greater diversification across company names. However, the Retail HOLDRs Trust (RTH) has significantly more trading volume and it packs a heavy weighting in the do-it-yourself stores, Home Depot and Loewe’s. 

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Leave a Reply