A glance at the sector
The retail sector includes companies that sell goods and services to consumers. The demand for these goods and services rises and falls with the economy, especially in a consumer-driven economy like that of the United States. The graph below shows that the SPDR S&P Retail ETF (XRT), which has exposure to 100 prominent US stocks, and the S&P 500 (SPX), which is the broad US market index, moved in tandem in November.
Correlation between the retail sector and the S&P 500 (SPX)
As can be seen from the above chart, the S&P 500 (SPX) beat the SPDR S&P Retail ETF (XRT) for the month, but the most important thing to note is that the correlation between the two was 0.85, which means the broad market index followed the performance of the retail sector in November. This was different from the relationship between the two in October, when the correlation dropped to 0.45, as markets were more closely correlated with energy prices.
As also seen in the chart above, the retail sector was volatile over the month, with XRT’s 30-day volatility climbing to 23.2%. This was due to mixed third-quarter earnings reported by the different retail subsectors over the month, which we’ll have a look at in the next part of this series.
In the next article, we will have a look at the performance of different sub sectors of retail.