Retail ETFs To Watch Ahead Of Q4 Results

The Q4 earnings season has been weak across all sectors with growth harder to come by in a slowing global economy, a stronger U.S. dollar, and weakness in oil. In fact, Q4 may be the third quarter in a row of negative earnings growth.

However, with about half of the Q4 reports yet to come, retail is faring better than many other sectors. Total earnings for the retail sector that has reported so far are up 6.8% on 11.8% revenue growth. Notably, revenue growth of this sector has been the best so far this season. This is especially true given the robust numbers from retailers like Whole Foods Market (WFM – Analyst Report), Yum! Brands (YUM – Analyst Report) and Michael Kors (KORS – Analyst Report). 
 
The strength is likely to continue when the big retailers like Wal-Mart (WMT – Analyst Report) and Nordstrom (JWN – Analyst Report) reports earnings results tomorrow. Other major retailers such as Home Depot (HD – Analyst Report), Macy’s (M – Analyst Report), Lowe’s (LOW – Analyst Report), Target (TGT – Analyst Report), Gap Inc. (GPS), and Kohls (KSS) releases earnings reports next week.

Solid Trends

Though consumer spending, which accounts for more than two-thirds of U.S. economic activity, moderated in the final quarter of 2015 buoyed by more savings, it started regaining momentum lately as consumers began to reap the benefits of a slowly but recovering economy, better job and wage prospects, and a lower oil price. As a result, retail sales edged up 0.2% in January, better than the market expectation of 0.1% growth.

Further, U.S. consumer confidence is improving, as measured by the Conference Board. The Consumer Confidence Index jumped to 98.1 in January from a revised 96.3 in December while the index of consumer expectations for the next six months climbed to 85.9 in January from 83 (see: all the Consumer Discretionary ETFs here).

Moreover, the upside to this segment could be confirmed by the Zacks Industry Rank, as three-fifths of the industries falling under this segment have a solid Rank in the top 42% at the time of writing.

ETFs to Buy

Given encouraging fundamentals and a spate of earnings releases this week and in the next, investors should carefully watch the movement in retail stocks and could consider a broad play via ETFs in order to take advantage of the power-packed earnings releases seen so far and solid trends.

For this, looking at some of the top-ranked retail ETFs having a Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy) could be excellent picks as these funds have potentially superior weighting methodologies, which could allow them to outperform in the coming months (read: all the Top Ranked ETFs).