A sharp turnaround in retail stocks since November could be hinting at an economic recovery sooner than economists are predicting, although analysts are unsure whether the valuation and sentiment is a good mix for investors looking to bet on a rebound. Retailers get knocked down particularly hard when a sinking global economy leads to a rapid decline in consumer spending -- common sense would tell you that even if history didn't prove it. But as the economy continues to struggle around the globe, it's strange to find that many retailers are outperforming over the last four months. Chain-store sales were in a tailspin that began in July, months before the September meltdown in the financial sector. The numbers only continued to worsen, falling a whopping 3.4% in October. That was followed by a 2.4% decline in November and a 3.1% drop in December, a critical time for retailers because of the holiday shopping season. With the economy continuing to deteriorate, it was a natural assumption that retail sales would continue to slide.
Then something peculiar happened. Retail sales rose a revised 1.8% in January, or 1.6% excluding autos, surprising many economists. And while February retail sales, released a few weeks ago, showed a decline of 0.1%, sales excluding autos increased 0.7%, the first consecutive monthly gain since July. However, the share prices of retailers did not appear to move in lockstep with the overall data. While the data continued to weaken through December, the S&P Retail ( XRT) ETF set an all-time low of $14.81 in November before quickly turning around, almost three months before January's positive sales report was released.