For today’s column, we welcome guest editor Moby Waller, writing on ETFs.
Don’t wait until the last minute to buy retail stocks.
I’ve uncovered a little-known calendar trend as we head into the holidays that can give you a leg up.
Acting right now could help you beat the S&P 500 in November and avoid a January pitfall. The best part is that you can do it quickly and easily using a low-cost ETF trade.
Retail stocks are heavily influenced by the Christmas and holiday shopping season. In fact, 20% to 40% of a retailer’s annual sales can occur just during November and December.
You’ve probably heard the adage, “Buy the rumor, sell the news.” In this case, it has been holding true: Buy retail stocks now, ahead of the holidays…and sell them before January.
Don’t Miss the Gains
If you wait until AFTER the Black Friday and Christmas sales results are reported, the gains are likely already gone. Get your “holiday shopping” trade done EARLY, well before the Champagne pops for New Year’s and these stocks tend to come back down.
I analyzed data on the most well-known liquid retail ETF, SPDR S&P Retail ETF (NYSE: XRT) and found some interesting results:
The beginning of the Christmas holiday season (November) has been a good time to buy the group, and the post-shopping season (January) has been a good time to avoid (or be short) the sector.
XRT has outperformed the market in November with an average gain of 2.26% in that month alone. In addition, XRT has lost an average of 1.87% during January in the period examined (2006, 2009 to 2015). December has been a relatively neutral month for retail stocks compared to the S&P 500.
Compared to the S&P 500 ETF (NYSE: SPY), XRT has beaten the market by 26% in November : +2.26% compared to +1.79%. Moreover, its January losses are more than double those of the S&P 500.
It’s worth noting that with the XRT, you won’t be stuck in 100% “brick-and-mortar” companies. That’s because XRT holds online retailers such as Netflix (NASDAQ: NFLX) and Amazon.com (NASDAQ: AMZN). This ETF tracks the S&P Retail Select Industry Index, and is equally weighted among nearly 100 stocks.
Above is a monthly chart of XRT since it was introduced in 2006. But we’re not concerned about the long-term big-picture outlook on the ETF right now.
Instead, we’re more interested in earning some profits in the next few months.
If you’re bullish on the 2016 holiday shopping season, history says to buy retail stocks in late October or early November. And be sure to exit your trade by the end of November or December.