The Surprising Strength of Retail

We examined the performance of some leading broad-based and sector indices since the March 9th bottom. The first chart below shows the percent gain/loss in 9 widely followed indices from March 9th to the present.

You can see the biggest gains were in the Bank and Broker/Dealer sectors, with the S&P Bank Index ($BIX) up over 110% when this data was captured yesterday. Of course, even including the recent gain, this Bank Index is down about 71% going back 2 years, so the recent performance must be taken with a grain of salt. After Banks & Brokers, the next 2 recently outpeforming groups among those examined are Retail and Transports, both up in the 50% range off their lows. These economically-sensitive groups are somewhat logical outperformers, given that economic expectations have risen greatly in recent weeks. Next we have the S&P 500 Index ($SPX) and Nasdaq 100 Index ($NDX), both up 30% plus off the March lows. What is interesting here is that the S&P 500 has matched the Nasdaq's performance, which is a bit of a reversal from previous months where the Nasdaq was outperforming.

Index Percent Performance Chart Since March 9th

But as we all know, most investors & traders were not able to perfectly time the markets and re-enter 100% allocation on the March 9th close. So stepping back to get some perspective on these same indices over the past 52 weeks is useful. The following chart shows the percentage change in the same 9 indices over the past 52 weeks from today. Here you can see the significance of the decimation inflicted on Banks and Brokers, as they are the laggards of this group. Even the best performing of these indices is down over this time period, in the 10% to 20% range. The one notable group that is among the relative leaders in both time periods studied is the S&P Retail Index ($RLX) in purple.

Index 52 Week Percent Performance Chart

So if one held the Retail Index long since March 9th, you would have outperformed the S&P 500 and Nasdaq 100 by about 20% over the past couple of months. Even if held over the past year, you would only be down about 18% in this index, versus about 29% for the NDX and 36% for the SPX.

The S&P Retail Index is very diversified and basically equally-weighted, as can be seen by the Top Holdings list below.

Retail Index Holdings

Wal-Mart (WMT) 1.49%
CVS Caremark (CVS) 1.74%
Amazon (AMZN) 1.71%
Walgreen (WAG) 1.89%
Target (TGT) 1.99%
Costco (COST) 1.55%
Best Buy (BBY) 1.85%
Staples (SPLS) 1.77%
Kroger (KR) 1.58%
Kohls (KSS) 1.60%

(holdings data from spdrs.com)

The best proxy for individual investors to trade this index is probably the SPDR S&P Retail ETF, symbol XRT.

Bottom Line: Retail has been both a relative "safe haven" and market outperformer since the March 9th bottom and over a 52 week time frame. Pre-conceived notions of the past involving the Retail sector (such as seasonality, its economic sensitivity, etc) may need to be re-thought in the new global economy.

Comments

[Jason Tillberg:]

I'm recently short AMZN, BBBY and SPG. Consumer needs to deleverage and has yet to do so. Safe Haven in retail is a near oxymoron.

Thanks for article.

May 07 12:20 PM