Consumer discretionary stocks have been the best stocks over the intermediate term.
The Discretionary Sector SPDR $XLY is leading all other sector indexes over the trailing three and six months.
When we dive beneath the surface, this strength is being driven by a variety of retail stocks.
The largest retailers have led the charge for discretionary, as is the case for most sectors.
Here is the market cap weighted VanEck Retail Index $RTH, trading just off all-time highs:
The largest holdings here are Amazon $AMZN, Walmart $WMT, Costco $COST, and Home Depot $HD.
It’s all the big boys. These mega-cap names dominate the discretionary sector.
But even the equal weight SPDR Retail Index $XRT is completing a primary trend reversal and embarking on a fresh uptrend.
The largest holdings of this ETF couldn’t be more different than RTH. The top names in XRT are as offensive as they come, including Gamestop $GME, Chewy $CHWY, and Warby Parker $WRBY. It also has high-fliers like Abercrombie $ANF and Urban Outfitters $URBN in its top holdings.
While the large, cap-weighted RTH has definitely performed better than the broader-weighted XRT, the important point is that it's all working for retail stocks.
With earnings season upon us, I’m extra focused on some of these lesser-known, small-cap retailers.
Retail is the strongest industry group in the leading sector of the market.
I expect participation will only expand for these stocks, and the coming earnings reports should be an upcoming catalyst for it.
