A wild start to 2023 for retail stocks creates huge performance gaps for ETFs
A busy first week of 2023 for the retail industry has resulted in wide swings in stocks in the sector and wide divergences between some seemingly similar exchange-traded funds. The industry saw some big single-stock moves in the first few days of the year, with Bed Bath & Beyond warning of a possible bankruptcy and Macy’s trimming its financial guidance. Yoga pants and sportswear maker Lululemon also said it expects gross margin to decline in the fourth quarter, a sign that high-end retailers could also face a choppy year. At the same time, several online retail stocks boomed, in part as China abandoned its zero-Covid policy. That has created a large gap between some retail ETFs, with broader funds lagging behind those with an e-commerce focus. For example, the Amplify Online Retail ETF (IBUY) and ProShares Online Retail ETF (ONLN) are up 7.7% and 8.1%, respectively, over the first five trading days of the year. These funds both have significant exposure to Chinese stocks like Alibaba and Pinduoduo. The Emerging Markets Internet & E-Commerce ETF (EMQQ), which is heavily weighted in China, rose more than 12%. IBUY YTD Mountain Online retail ETFs like IBUY have made a fast start to 2023. Meanwhile, the US-focused SPDR S&P Retail ETF (XRT) gained 3.3%, beating the S&P 500 but lagging its digital-focused peers. This divergence could be part of a shift back into technology stocks that Wall Street witnessed earlier this year, as well as part of a possible preview of the macro environment in 2023. While some retail traders are more defensive in nature and could prove proving to be sector ETFs are relative winners in a slowdown and, because of their broad diversification, also give investors access to companies that were already struggling before a potential recession hit the United States. “It is difficult to enter a trade. And I think those ETFs that have exposure, like a Nordstrom [could struggle]. These companies have massive excess inventory and need to cut their entire product. … They cut everything. It’s going to be a sell-off,” said Andrew Smith, chief investment strategist at Delos Capital Advisors. But that recession narrative doesn’t necessarily apply to China, where government officials have eased public health restrictions and appear poised to endure a wave of Covid infections to open up the economy. That could mean that the Chinese consumer will see a big recovery this year. “China appears to be the only major economy where GDP growth will accelerate from 2.4% in 2022E to 5.3% in 2023E, driven by reopening.” Pierre Lau, China equity strategist at Citigroup, said in a customer note on Monday. Lau listed the consumer and internet sectors as areas where investors should be overweight in China. The continued weakening of the US dollar could also benefit international equities, with ETFs giving a boost to more global exposure. Sure, some of Chinese stocks’ gains have come not only from the reopening, but also from signs of looser regulation. Last week, Ant Group received approval to expand its consumption by the Er Finance Business, a sign that Chinese government officials may be moving towards lighter oversight of tech companies. Internet retailers like JD.com traded higher on the news, but bets on the direction of Chinese regulation have burned investors in recent years. Any reversal there could push retail ETFs, which also hold more traditional brick-and-mortar stores, back into the lead. – CNBC’s Michael Bloom contributed to this report.
https://www.cnbc.com/2023/01/11/a-wild-2023-start-for-retail-stocks-creates-big-etf-performance-gaps.html A wild start to 2023 for retail stocks creates huge performance gaps for ETFs
