S&P Retail ETF and Real Retail Sales are highly correlated. I expect the S&P Retail ETF (XRT) to hit a cycle low soon and trend upwards into the beginning of the Holiday Season. The XRT should then fall after Black Friday and the budget negotiations start to come to into focus. This presentation lays out the seasonality and cyclicality of Retail Sales, Consumer Confidence and the S&P Retail ETF.
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Retail ETF and consumer confidence
1. Closing Up Shop before the Holiday Season:
Consumer Confidence, Retail Sales, and the S&P Retail ETF
Monthly Correlation to Real Retail Sales Since 2010
100.00%
94.66%
100%
90%
80%
70%
60%
66.18%
58.40%
61.58%
50%
Monthly Correlation
to Real Retail Sales
Since 2010
40%
30%
20%
10%
0%
Conference
Board Consumer
Confidence
XRT
Danny Russell, Oso Capital Research, October 2013
Umichigan
Confidence
Umichigan
Confidence
Prelim
Real Retail Sales
2. Retail Sales leads S&P Retail ETF Upwards
Since the start of 2010, S&P Retail ETF
(XRT) has followed Real Retail Sales
closely
The cumulative change in XRT and
Real Retail Sales since January 2010 is
128% and 14.2% respectively
S&P Retail ETF and Real Retail Sales
140
58
120
56
100
54
80
52
60
Real Retail
Sales Index
50
40
20
XRT is levered to Real Retail Sales by
an average of 6.27x every month
XRT Index
48
0
46
Indexed at 12/31/2009 at 50
S&P Retail ETF and Retail Sales CAGR Since 2010
30.00%
25.00%
24.64%
20.00%
15.00%
CAGR
10.00%
3.60%
5.00%
0.00%
XRT
Source: Federal Reserve, Yahoo Finance
Real Retail Sales
3. Correlation to Real Retail Sales
The correlation between XRT and Real
Retail Sales is just under 95%
Monthly Correlation to Real Retail Sales Since 2010
This correlation beats the Conference
Board’s Consumer Confidence and
University of Michigan’s Consumer
Confidence
100.00%
94.66%
100%
90%
80%
70%
60%
66.18%
58.40%
61.58%
50%
40%
30%
The correlation between Real Retail
Sales and Consumer Confidence is
relatively high at 70%
20%
10%
0%
Conference Board Consumer Confidence
XRT Umichigan Umichigan Confidence Prelim Sales
Confidence
Real Retail
Conference
Board Consumer
Confidence
XRT
Umichigan
Confidence
Umichigan
Confidence
Prelim
Real Retail Sales
Conference
Board Consumer
Confidence
100.00%
69.05%
72.76%
73.10%
58.40%
XRT
69.05%
100.00%
69.89%
64.04%
94.66%
Umichigan
Confidence Final
72.76%
69.89%
100.00%
97.19%
66.18%
Umichigan
Confidence
Prelim
73.10%
64.04%
97.19%
100.00%
61.58%
Real Retail Sales
58.40%
94.66%
66.18%
61.58%
100.00%
Source: Federal Reserve, Yahoo Finance, Conference Board, University of Michigan/Reuters,
Monthly
Correlation to
Real Retail Sales
Since 2010
4. Consumer Confidence, Retail Sales, & XRT Seasonality
20.00%
15.00%
Real Retail Sales bottom during the
summer months and peak during the
early fall and slide into the end of the
year
1-Dec
1-Nov
1-Oct
1-Sep
-10.00%
1-Aug
-5.00%
1-Jul
2012
1-Jun
0.00%
1-May
2011
1-Apr
5.00%
1-Mar
2010
1-Feb
10.00%
1-Jan
The rolling three month change in
XRT, Real Retail Sales and the
University of Michigan Consumer
Confidence all exhibit similar
seasonality
XRT Rolling 3 MOM Change Seasonality
2013
-15.00%
Real Retail Sales Index Rolling 3 MOM Change
Seasonality
15.00%
10.00%
2010
1-Dec
1-Nov
1-Oct
1-Sep
1-Aug
1-Jul
1-Jun
1-May
-5.00%
1-Apr
2012
1-Mar
0.00%
1-Feb
The XRT shows similar seasonality to
Real Retail Sales bottoming in the
summer only to rise into the early fall
and then slide down into the end of the
year
2011
1-Jan
5.00%
2013
-10.00%
Umichigan Confidence Final 2010
15.00%
10.00%
2010
-10.00%
Source: Federal Reserve, Yahoo Finance, Conference Board, University of Michigan/Reuters,
1-Dec
1-Nov
1-Oct
1-Sep
1-Aug
1-Jul
1-Jun
1-May
-5.00%
1-Apr
2012
1-Mar
0.00%
1-Feb
2011
1-Jan
5.00%
2013
5. Real Retail Sales & XRT Trade
I expect the annualized volatility to mean revert just slightly and the XRT
to trend up into the Black Friday and then start to fall
This will correspond to the Real Retail Sales seasonality
The recently passed “kick the can” bill to have a budget in early December of
2013 should act as a tailwind to this trade with the fear happening right along with
the seasonality slide after Thanksgiving
80%
Historical Volatility of XRT
Volatility
70%
Historical Volatility
60%
50%
Average Vol
Adjusted Close
50 Day SMA
90
80
70
60
50
40%
40
30%
20%
30
20
10%
10
0%
0
Source: Google Finance, InvestExcel
6. XRT Cycles and Buying Spot
Courtesy of Stockcharts, the XRT makes a turn every 30 or so days
The most recent turn was August 1 when the XRT retraced -4.95% in 7
trading days
This retracement was due partially to the government shutdown and the broader
market selloff
I would buy the XRT when it makes another cycle low which should
happen rather soon and will most likely correspond to the support which is
around $81.20
I do not believe the economy is turning around or that consumers will
spend a lot during the holidays, this is purely a sentiment play
Source:StockCharts