The SPDR S&P Retail Sector ETF (XRT) just made new all-time daily closing highs. I was going to write an extensive piece on how we got here and the lessons we can take away about knowing what we own and exercising professional skepticism when we hear gross generalizations like "retail is dying," but I don't think I even need to make it that complicated.
Here's the example we typically hear from the journalists and analysts that are making the bearish retail case. Since 2007, Amazon.com, Inc. (AMZN) is up 5,170%, and J. C. Penney Company, Inc. (JCP) is down 97.5%. So that's it. Case closed. Traditional retail is dead, so go out and buy Amazon and short the rest of the sector. Right? (See also: Amazon Captures 5% of All Retail Spending: Bloomberg.)
Well, if it were that simple, then the equal-weighted SPDR S&P Retail Sector ETF wouldn't be breaking out of a three-year base to new all-time daily closing highs.
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So what is the retail sector composed of exactly? A quick look at the fund allocation shows that there are 10 different industries represented here, and department stores like J. C. Penney are only 5.75% of the weighting.
So what's my point? The index has 88 individual holdings, and since the bottom on Aug. 21, 2017, the average stock is up approximately 53.5% and the median is up roughly 39.50%, while 16 of the holdings more than doubled over that period. There were also 44 stocks that underperformed XRT and 14 stocks that were down over this period, so there was opportunity for stock pickers on both sides of the tape – you just had to look. Yes, there are industries that are struggling within the retail sector, but there also others that are thriving. However, that's not unique to retail – there are leaders and laggards in every market at all times. (For more, see: 4 Retail Stocks Shattering Records Despite Amazon Threat.)
The Bottom Line
When it comes to market narratives, it's important to exercise professional skepticism and validate the claims being made by doing the work on your own. Quick soundbites might make you sound smart, but they rarely make you any money, which is why we're all here. So the next time you hear something that just doesn't sound right, I'd encourage you to do the work yourself, as there's likely an opportunity to take advantage of others' ignorance and/or laziness.
Thanks for reading, and let us know if you have any questions!