Retail Sales Off To A Great Start To Q3: ETFs To Buy

After witnessing slight improvement in June, U.S. retail sales registered their largest increase in seven months in July. Retail sales in the U.S. jumped 0.6% sequentially in July 2017, following an upwardly revised 0.3% increase in June. The reading in July was ahead of 0.4% advancement expected by the market. Notably, sales in May were also revised up to flat from the previous reading of a 0.1% decline.

As many as 10 out of 13 major retail categories exhibited stronger sales in July than the previous month, as per tradingeconomics. Sales at Miscellaneous store retailers (up 1.8% from 1.7% decline in June), motor vehicle and parts dealers (up 1.2% from 0.9% rise in June), online retailers (up 1.3% from 1% gain in June) and building material stores (up 1.2% versus 1.1% gain in June) were among the key drivers.

A solid job data may have helped in boosting retail sales lately. Wage growth was 2.5% year over year in July against expectations of a decline to 2.4%. As a result, the Consumer Confidence Index increased to a 16-year high of 121.1 in July, overruling expectations for a falloff (read: ETFs to Buy or Dump Post Upbeat July Jobs Data).

As per an article published on MarketWatch, online e-commerce behemoth Amazon’s (NASDAQ:AMZN) third annual Prime Day helped boost sales of non-store retailers in July. Investors should note that the 30-hour event was a runaway success, marking the biggest shopping day in the company’s history (read: Amazon Prime Day Hits Record: 5 Best ETF Deals).

Also, a still-dovish Fed is perhaps acting as a tailwind as a few more months of cheap dollar should boost consumers’ purchases and the investing world.

Will the Momentum be Maintained?

With the University of Michigan's consumer sentiment for the U.S. coming in at 90.4 in August 2017 – lower than expectations of 91.5 but higher than the earlier-month reading of 90 – retail spending is likely to be moderate in the coming month.

However, there are some glitches too. Americans are utilizing their savings to finance spending thanks to still-sluggish wage growth, as per an article published on CNBC. Savings nosedived to 3.8% in the second quarter of this year from 6.2% in the year-ago quarter. So, the winning trend in retail sales may not continue.

Against this backdrop, we recommend a few ETFs that can be investors’ favorites.

iShares Edge MSCI USA Momentum Factor ETF MTUM

The release of upbeat retail sales data helped the broader market shrug off some fears related to Trump-Kim Jong-un tensions. Plus, some other upbeat economic readings including job data and manufacturing numbers probably have led some market watchers start wagering on an earlier-than-expected Fed policy tightening. As a result, benchmark U.S. Treasury yields rose in the last two days (as of August 15, 2017). This makes the case for momentum investing intriguing at this moment.

Notably, MTUM gained about 1.8% on August 15. The fund added 1.7% after hours.

Amplify Online Retail ETF IBUY

Sales at non-store retailers rose 1.3% following a 1% rise in June. This is one area which has been more-or-less steady in recent months. This explains why online retail ETF is our pick (read: 3 ETFs & Stocks to Buy Post June Retail Sales).

iShares Edge MSCI Minimum Volatility USA Small-Cap ETF SMMV

The increase in retail sales point to the shored-up consumer confidence of Americans. This makes sense in investing in small-cap stocks which are known for true domestic exposure. However, with the broader market remaining edgy on geopolitical concerns, it is better to have a look at the minimum volatility ETF.

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