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Best Retail Sales Growth in May: Sector ETF & Stocks to Win

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Retail sales in the United States surged 17.7% sequentially in May, breezing past the forecast of an 8% jumpand after a record 14.7% slump in April. This marked the biggest uptick on record in retail sales as the coronavirus-led lockdown eased. While stores and restaurants started reopening in the month, resumption of jobs, federal stimulus checks and tax refunds also led to the increase in spending. Sales were 6.1% lower than the year-ago level.

Consumer spending makes up about 70% of U.S. economic activity. Thus, any massive jump in it will likely brighten the economic growth picture. Below we highlight a few areas and the related ETFs that benefited the most. Most of the sectors that were the biggest laggards in April staged a rebound in May (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).

Clothing

Many mall-based clothing stores were closed amid lockdowns. So, pent-up demand boosted spending in this segment. Apparel and accessories sales skyrocketed 188% sequentially in the month. However, sales were still 63.4% lower than May 2019.

Investors should note that apparel sales slumped 75.2% in April 2020. Apparel Retail takes about 14% of the fund SPDR S&P Retail ETF (XRT - Free Report) . The fund may face little pain ahead as much of the focus of XRT lately shifted toward online stores.

For single-stock selection, Zacks Rank #2 (Buy) Buckle Inc. (BKE - Free Report) and Xcel Brands Inc XELB appear nice bets here.

Furniture and Electronics

Furniture sales jumped 89.7% sequentially. Year over year, sales were down 21.5%. In April 2020, sales declined 48.4% sequentially. Home furnishing company Home Depot (HD - Free Report) has considerable exposure to Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) and VanEck Vectors Retail ETF (RTH - Free Report) . So, these ETFs should win following the release of retail sales.

Investors can also bet on Zacks Rank #1 (Strong Buy) stocks like RH (RH - Free Report) and Haverty Furniture Companies Inc. (HVT - Free Report) .

Electronics and Appliances

Sales of this category surged 50.5% sequentially. Year over year, sales were down 29.9%. In April 2020, sales declined 43.2% sequentially.  Consumers’ interest in buying electronics products should keep demand for semiconductors higher and put VanEck Vectors Semiconductor ETF (SMH - Free Report) in a better position.

On the equity front, Zacks Rank #1 Systemax Inc. appears a good bet. The company is a direct marketer of brand name and private label products.

Sporting Goods, Hobby, Musical Instrument, & Book Stores

This segment saw a surge in sales by 88.2%. Moreover, the segment’s sales were 4.9% higher year over year. Such trends should bode well for all retail and consumer discretionary ETFs like XRT, XLY and RTH. In this regard, investors can place a bet on the nation's largest recreational boat and yacht retailer MarineMax Inc. (HZO - Free Report) , which has a Zacks Rank #2.

Restaurants

Sales in food services and drinking places saw a sales increase of 29.1% in May, though sales were 39.4% down year over year. Investors should note thatrestaurants added 1.4 million jobs in May, marking almost half the total job increase last month.

In May, 73% of restaurant operators expected their sales volume to take six months to match the same level in the year-ago period. A few restaurant stocks have exposure to Invesco Dynamic Leisure and Entertainment ETF PEJ, so the fund stands to benefit.

As far as stocks are concerned, investors can bet on Zacks Rank #2 Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) and Papa Johns International Inc. (PZZA - Free Report) .

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