Wall Street started the week on a strong note once again, thereby extending the winning streak just a bit longer. Both the Dow Jones Industrial Average Index and S&P 500 Index inched up to all-time or multi-year highs (3 Ways to Play the S&P 500 Rally with ETFs).
The benchmark S&P 500 as represented by the SPDR S&P 500 ETF (SPY - ETF report) made it seven sessions of gains in a row, while touching its highest intraday level since Oct 15, 2007 in the Monday trading session. Also, the Dow Jones Industrial Average, as represented by (DIA - ETF report), closed at a record high of 14,447.29 on Monday.
What is powering the rally?
Solid growth in U.S. job data for the month of February fueled the positive sentiment in the market thereby driving the U.S. equities and indexes higher. The Bureau of Labor Statistics (BLS) reported that the economy created 236,000 more jobs in February which came in better than the expected increase of 160,000 new jobs. The unemployment rate dropped to 7.7% in February from 7.9% in January (Impact of Positive Jobs Data on ETFs).
ETFs to Watch
In such a positive environment, volatility levels have slumped. This is best represented by the CBOE Volatility Index or the VIX. This fear gauge tends to do well when markets are sliding or fear levels have been riding high, neither of which have been happening as of late.
Instead, the VIX has been dropping like a stone as of late, pushing the benchmark to its lowest level in five years. This has obviously kept the pressure on various volatility ETNs like VXX, a product that has lost over 25% this year, and could continue to fall if more positive data hits the market this week.
Investors this week should also focus on the SPDR S&P Retail ETF (XRT - ETF report) as retail sales and consumer sentiment numbers are due to come out. Retail sales are expected to increase by 0.6% in the month compared to 0.1% in January (Time to Buy Retail ETFs?).
The rise in sales can be attributed to higher gasoline prices. Higher gasoline prices should also provide a boost to the consumer price index, as the CPI is expected to show an uptick of 0.6%.
Another reason which should shift investors’ attention to XRT is that a few retailers are scheduled to report earnings this week. Costco Wholesale Corp (COST - Analyst Report) and Hot Topic Inc (HOTT), are amongst the few to report earnings this week.
It should be noted that the retail industry is sure to benefit from an improving economy, an increase in consumer spending and better income levels as a function of higher employment (3 Overlooked Ways to Target Consumers with ETFs). Further, a recovery in the auto and housing market should positively impact the U.S. retail industry.
Investors looking to capitalize on this improving consumer sentiment through a basket of securities can invest in XRT as the fund appears to be one of the more popular ways to play the trends in the industry.
XRT is one of the top performing ETFs in the retail sector beating all its peers in 2012. And it continues with its outstanding performance this year delivering a return of 7.71% year to date.
The fund’s tilt towards small cap holdings may have provided a boost to its year-to-date performance in this bullish environment, as small caps tend to deliver solid gains when the market turns around.
XRT manages an asset base of $1 billion which it invests in a portfolio of 98 securities. The fund charges a fee of 35 basis points annually. XRT has a Zacks Rank #2 (Buy) and we expect it to outperform its peers over a period of one year, but it could be in for a volatile week thanks to key data and reports described above (Inside the Top Zacks Ranked Retail ETF).
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