The Consumer Is Still Surging In 2021 - Leveraging The Retail Trade

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Despite the economic struggles gripping much of the domestic and global economy, consumers spent more than expected this holiday season.

The National Retail Federation reported Friday that holiday retail sales—a figure that tracks retail spending through November and December excluding restaurants, automobile dealers, and gas stations—rose 8.3% year-over-year in 2020.

According to the report, holiday sales increased in six of the nine retail categories, with online and other non-store sales (i.e. e-commerce, which was up 23.9%), building materials and garden supply stores (up 19%), and sporting goods stores (up 15.2%) leading the charge.

(It should also be noted that the Commerce Department, which tracks purchases made at stores, restaurants, and online, reported that U.S. retail sales declined 0.7% month-over-month in December, below the 0.2% estimate. The discrepancy could be due to high expectations from economists.)

Winners & Losers

Recent reports from a number of retailers support the idea that e-commerce demand was exceedingly strong in Q4.

Target Corporation TGT reported December comparable sales rose 17.2%, but much of that growth was due to a 102% increase in digital sales for the period. Costco Wholesale Corp COST had similar results. December comparable sales for the warehouse giant rose 10.7% while e-commerce sales rose 62.5%.

However not every retailer was saved by online demand.

Department store Nordstrom Inc JWN reported holiday sales decreased 22% despite a 23% increase in digital sales. Signet Jewelers SIG, the parent company of Kay Jewelers, Zales, and other jewelers, reported holiday sales did not grow year-over-year, despite a 60% increase in e-commerce.

In specialty retail, L Brands, Inc. LB reported comparable sales rose 5% across its portfolio of companies. That was driven by a 17% increase in Bath & Body Works, which counteracted a 9% decrease at Victoria’s Secret. Zumiez ZUMZ said holiday sales rose just 1.7%.

Leveraging The Retail Trade

All of this to say that retail, at least its online iteration, is alive and well in the pandemic, and it’s driving traders to the trade. This is evidenced by the recent performance of the Direxion Daily Retail Bull 3X Shares RETL, which has surged to a new all-time high in January.

Not only has RETL risen higher by nearly 40% in the last month, but the fund has taken in over $341 million in inflows during that span—over $100 million more than the next closest Direxion fund.

RETL provides three times the daily performance of the S&P Retail Select Industry Index, and holds all of the stocks mentioned above.

However what has really driven the fund in recent weeks is its exposure to several high-flying stocks. As of Jan. 19, nearly 5% of the fund was composed of Magnite Inc MGNI, Blink Charging BLNK and Gamestop GME.

Consumerism Is King

The bottom line is that strong retail sales are a product of the fact that American consumers are in a fairly healthy position in spite of the global pandemic. Government measures, as well as the convenience of e-commerce, have surely helped facilitate this trend.

Altogether, these factors may further support strong online spending in 2021. And with another round of stimulus expected from the Biden administration, it’s not out of the question to think the bullish retail trade could continue. 

Past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Short term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns.

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Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.

RETL as of 12/31/20

(subject to change)

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The “S&P Retail Select Industry Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Retail Select Industry Index.

Direxion Shares Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the return of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk, Other Investment Companies (including ETFs) Risk, and risks specific to the securities of the Retail Industry and Consumer Discretionary Sector. Retail and related industries can be significantly affected by the performance of the domestic and international economy, consumer confidence and spending, intense competition, changes in demographics, and changing consumer tastes and preferences. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.

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