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Retail ETFs Face Uncertainty

Some positive trends have emerged on the retail front. Whether they can be sustained is another thing.

NEW YORK (TheStreet) -- As the economy starts to recover and consumers start to come out of their shells, retailers have begun to reap the benefits of extra spending, and some are taking steps to retain customers.

However, it remains unclear whether these bullish trends are sustainable.

According to the most recent report issued by the Commerce Department, a range of retailers boasted month-over-month gains, boosting the sector as a whole to a seasonally adjusted increase of 0.3% in February over January. Additionally, a Thomson Reuters index of 28 retailers indicates that sames-store sales (those at stores open at least one year) rose 4% in February compared with a year ago.

Of all the retail subsectors, electronics and appliances saw the largest gains, followed by groceries. Despite wary consumer sentiment over the health of the economy, illustrated by the recent decline to 72.5 in the University of Michigan/Reuters consumer sentiment index, some retail experts suggest that consumers see the light at the end of the tunnel and are starting to upgrade their appliances and add additional items to their shopping baskets at the checkout line.

A second force behind recent retails gains is retailers' adaptation to recession-induced frugality. Retailers have restricted inventories and introduced lower-cost products that are helping increase foot traffic.

High-end retailers Prada and Gucci tweaked their brands and product line to adjust to the price-conscious consumer.


(WMT) - Get Walmart Inc. Report

has also taken steps, after noticing a recent decline in traffic. The world's largest retailer has announced that it will use aggressive pricing in grocery and other categories to attract shoppers and construct an environment where prices are too good to pass up. More specifically, the company is expected to roll back prices on 10,000 items, primarily focusing the cuts on food and other consumables.

Although consumers are willing to spend and retailers are making it easier to spend, macroeconomic factors are likely to put a damper on this upward trend.

Wages remain stagnant, consumers are taking on large sums of debt and credit still remains difficult to obtain. These are all factors that cause disposable income to dwindle. To make things even more challenging, unemployment rates are likely to remain elevated for an extended period and may even rise in the near term as some unemployed workers start to hunt for jobs again.

These forces are likely to make it difficult for consumers to sustain the levels of spending seen in February.

With this in mind, the use of an exit strategy using price points at which an upward trend could come to an end is highly valuable.

Some obvious equities that are likely to be influenced by the retail sector include the

SPDR S&P Retail

(XRT) - Get SPDR S&P Retail ETF Report

TheStreet Recommends

, the

Retail HOLDRs

(RTH) - Get VanEck Vectors Retail ETF Report

and the

PowerShares Dynamic Retail

(PMR) - Get Invesco Dynamic Retail ETF Report

. XRT, RTH and PMR closed Monday at $41.32, $100.43 and $17.71, respectively.

Other equities that are likely to be influenced include:

Consumer Staples Select Sector SPDR

(XLP) - Get Consumer Staples Select Sector SPDR Fund Report

, which boasts Wal-Mart and

Proctor & Gamble

(PMR) - Get Invesco Dynamic Retail ETF Report

as its top holdings. XLP closed at $27.91 on Monday.

iShares Dow Jones US Consumer Goods

(IYK) - Get iShares U.S. Consumer Goods ETF Report

, which has companies like


(KO) - Get Coca-Cola Company Report


Kraft Foods


in its top holdings. IYK closed at $59.69 on Monday.

Vanguard Consumer Staples

(VDC) - Get Vanguard Consumer Staples ETF Report

, which allocates nearly 75% of its sector weighting to consumer goods. VDC closed at $69.70 on Monday.

According to the latest data at

, an upward trend in these equities could come to an end at the following price points: XRT at $39.32; RTH at $96.97; PMR at $17.04; XLP at $27.24; IYK at $58.34; VDC at $68.10. These price points fluctuate on a daily basis and are reflective of market changes. Updated data can be found at

-- Written by Kevin Grewal in Laguna Niguel, Calif.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.