4 ETF Areas to Win Amid Slowing Retail Sales in May

May retail sales declined by 0.9%, exceeding expectations of a 0.6% drop, driven by consumer caution amid trade tensions; nonstore retailers saw a 0.9% sequential increase and 8.3% yearly gain, potentially benefiting ETFs like ONLN and companies like Amazon. Other areas showing gains include clothing stores, miscellaneous store retailers, and furniture & home furnishing stores, suggesting opportunities in ETFs like XRT, RTH, and IEDI, and companies like Urban Outfitters, Five Below, and Home Depot.

Analysis

May's retail sales data presented a mixed picture for the U.S. consumer economy, with headline sales falling 0.9%, a more significant contraction than the 0.6% anticipated by Dow Jones economists, following a 0.1% dip in April. This decline reflects heightened economic uncertainty and trade tensions, with consumers reportedly becoming cautious, especially with big-ticket items, after a spending peak in March driven by anticipated tariff enactments. When excluding auto sales, retail figures still disappointed with a 0.3% decline, against an expected 0.1% increase. However, a core measure for GDP calculations, which strips out volatile categories like autos, gas, and building materials, showed a resilient 0.4% gain. Specific retail segments demonstrated notable strength amidst the broader slowdown: nonstore retailers (primarily online sales) saw a 0.9% sequential increase and an 8.3% yearly gain. Clothing stores sales grew 0.8% sequentially and 3.7% year-over-year. Miscellaneous store retailers reported a robust 2.9% sequential rise and a 7.5% year-over-year increase. Furthermore, furniture and home furnishing stores experienced a 1.2% sequential sales increase and an 8.8% growth year-over-year, indicating selective consumer spending patterns.

Key Decisions for Investors

• Investors should consider focusing on specific retail sub-sectors demonstrating resilience, such as online retail (e.g., ONLN), clothing stores (e.g., XRT, URBN), miscellaneous store retailers (e.g., RTH, FIVE), and furniture/home furnishing stores (e.g., IEDI, HD), which reported positive sales growth despite the broader market slowdown.
• Evaluate opportunities within ETFs like ProShares Online Retail ETF (ONLN), SPDR S&P Retail ETF (XRT), VanEck Retail ETF (RTH), and iShares U.S. Consumer Focused ETF (IEDI) for diversified exposure to these performing segments, and assess individual stocks such as Urban Outfitters (URBN, Zacks Rank #1) and Five Below (FIVE, Zacks Rank #2) which exhibit strong indicators, while noting the 'Hold' (Zacks Rank #3) status for Amazon.com (AMZN) and Home Depot (HD).
• Closely monitor developments in trade policy and shifts in consumer confidence, as these elements were key drivers of May's retail landscape and are likely to remain influential for sector performance and specific stock outlooks.