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TheStreet Open House

Investment Rx: Buy Value ETFs in the U.S. and Growth ETFs Overseas

Stock quotes in this article: HD, TGT, DKS, SPLS, WMT, TIF, RTH, LOW, XLY, ORCL, MSFT, AAPL, IBM, TDIV, AAXJ

NEW YORK (ETF Expert) -- Home Depot (HD), Target (TGT), Dick's Sporting Goods (DKS), Staples (SPLS), Walmart (WMT). What do all of these companies have in common?

They sell products to the middle class. Lately, however, these retailers have not been selling a whole of their wares to middle class consumers.  Not only did they reveal disappointing top-line revenue numbers in the first quarter, sales weakness has been evident in April and May as well.

Conventional writers in the financial media have been blaming lower-than-anticipated sales on unusually harsh weather in the first few months of 2014. Unfortunately, that notion does not even stand up to the mildest of scrutiny. For one thing, the snowstorms have disappeared, while the retailers continue to flounder.

Equally telling, stock shares of high-end retailers like Tiffany (TIF)  have been skyrocketing on better-than-expected profitability. At the same time, brand-name corporations that serve the middle class are witnessing an erosion in their share prices. This deterioration can be seen when one compares an exchange-traded fund like Market Vectors Retail (RTH) with a broader benchmark like the S&P 500.

RTH S&P 500 Price Ratio

Retailer shares notwithstanding, the S&P 500 is notching record highs. One might think that the retrenchment in middle class spending would give stock investors pause. After all, how many times do we hear that the consumer represents 70% of the domestic economy?

Perhaps the greatest irony derives from the recent realization that overall consumer spending actually grew 3.1% between January and March. Out of one side of their mouths, spin-doctors speak about weather conditions adversely impacting consumption at major retail stores. Out of the other? The increases in consumption are a sign that Americans are feeling more confident about the future.

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