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After witnessing moderation at the close of 2016 and a rebound in January, U.S. retail sales nosedived in February. Sales in February grew 0.1% sequentially, after an upwardly revised 0.6% rise in January, and matched market expectations. On an annualized basis, retail sales grew 5.7%.

February marked the lowest gains since August, thanks to reduced buying of motor vehicles, and parts and electronics and appliances. As many as eight out of 13 key retail categories showed a decline in sales.

However, building material and garden equipment makers,non-store retailers, health and personal care stores and furniture stores recorded gains. Nevertheless, gains in furniture and personal care stores were not too hefty. Altogether, the retail sales pattern reinforced the long-standing talks about the gradual demise of brick-and mortar retailing (read: Have Q4 Earnings Really Hurt Retail ETFs?).

Analysts attributed this slowdown to “the delay of tax refunds.” In February, the final reading of the University of Michigan's consumer sentiment for the U.S. came in at 96.3 compared with a preliminary reading of 95.7 and the final 98.5 in January. It was the feeblest reading in three months, due to a decline in future expectations though the current economic conditions are improving.

Analysts still expect the environment to improve with rising consumer confidence and better job growth. However, if the rise in inflation is greater than wage growth, retail spending may not be very high (read: Sector ETFs to Win or Lose Post Jobs Data).

Plus, the Fed also pointed to a gradual policy tightening trajectory. This should endow consumers with a few more days of cheap money inflows. The extra money can in turn be shelled out at retail stores.

Market Impact

The market reaction to February retail sales data was positive on sector ETFs as retail stocks celebrated gradual Fed rate hikes in the days to come brushing aside downbeat sales data. SPDR S&P Retail ETF (XRT - Free Report) and VanEck Vectors Retail ETF (RTH - Free Report) gained about 0.9% and 0.4% on March 15 following the release of retail sales data. However, PowerShares Dynamic Retail ETF (PMR - Free Report) was down 0.2%.

Are There Any ETF and Stock Buys?

Definitely investors can land up on some hidden gems even in this subdued backdrop. Below we recommend a few ETFs & stocks to make the most of U.S. retail sales growth.

ETF Picks

Amplify Online Retail ETF (IBUY - Free Report)

This fund could be an intriguing bet given a 1.2% jump in spending at non-store and online retailers in February compared with a 0.8% decline in miscellaneous store retailers, a 0.4% fall in miscellaneous store retailers and a 0.1% dip in food services and drinking places. The fund added about 0.4% on March 15 (read: ETFs to Ride on Amazon's Best Ever Holiday Season).

The Health & Fitness ETF (FITS - Free Report)

As consumers splurged on health and personal care stores, one can have a look at FITS.The fund tracks the performance of companies globally that are positioned to profit from servicing those participating in health and fitness activities. It is likely to cash in on the growing health consciousness among consumersFITS was up about 1.22% on March 15.

Stock Picks

BMC Stock Holdings Inc. (BMCH - Free Report)

The company provides diversified building products and services to professional builders and contractors primarily in the residential housing market. It has a Zacks Rank #2 (Buy) and VGM (Value-Growth-Momentum) score of A. The stock was up about 0.9% on March 15 (read: Play the Housing Boom with 3 Sector ETFs).

American Woodmark Corporation (AMWD - Free Report)

It is a furniture company and manufactures kitchen cabinets for remodeling and new home construction markets. It has a Zacks Rank #2. The stock was up about 1.5% on March 15.

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