The Relationship between the Retail Industry and the US Economy

The United States is a consumer-driven economy where a large part of its growth is dependent on consumer behavior. The economy’s dependency makes it all the more important to understand the current saving and spending patterns of consumers in the country to understand where the economy is headed and what can be expected from the market in the United States.

If we look at the correlation between the S&P 500 (SPX) Broad Market Index and the SPDR S&P Retail ETF (XRT), it comes out to be 0.91. Similarly, the US GDP (gross domestic product) has a correlation of 0.94 with the retail ETF, which indicates a high positive correlation between the US economy and the retail sector as a whole.

The SPDR S&P Retail ETF (XRT) is a passively managed ETF that tracks the S&P Retail Select Industry Index, which has an exposure to 102 prominent retail stocks in the US. Some of the major holdings in the ETF are Netflix (NFLX) at 1.32%, Amazon (AMZN) at 1.15%, Office Depot (ODP) at 1.13%, and Whole Foods Market (WFM).

When we compare the S&P 500 (SPX) with the SPDR S&P Retail ETF (XRT), the retail ETF has beaten the broad market index on a trailing one-year basis. However, due to the recent performance of the companies and future prospects of the retail sector as a whole, the retail ETF has plunged 4.53% in the last month, whereas the S&P 500 has just fallen 1.21% in the same period. In this series, we’ll examine what has caused such a drop recently and look at how different retail indicators are shaping up.