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Forget the Beach This Summer, Americans Are Going Shopping

Three big box retailers report better-than-expected earnings this morning, and comments from the three CEOs suggest gains are sustainable:

Insight & Action

Consumer spending accounts for 56 percent of U.S. GDP, according to Citigroup strategist Tobias Levkovich. So consumer strength has a significant impact on overall economic health. Falling unemployment has resulted in higher U.S. personal income this year, which in turn is filtering back into the economy via higher spending.

Insight & Action

Money managers are well aware of these flows, and have pushed up the S&P Retailing Index nearly 26 percent this year. Since hitting its all-time high on August 5 however, the index has slipped nearly 5 percent, roughly in-line with the broader market. It's now resting on a clear trend line which has provided support three times this year.

Insight & Action

Given today's reaction to earnings (Best Buy is up 10 percent and TJX 5 percent), we highlight six retailers reporting over the next several days where analysts have recently raised estimates. We note each has traded lower this month, creating potential for a rebound.

Insight & Action

Blog readers who instead prefer playing the broader trend can diversify via two ETFs: XRT and RTH. The XRT includes roughly 70 stocks in equal proportion and tracks the S&P Retail Index pictured above. The RTH on the other hand is market cap-weighted, so Wal-Mart accounts for 8.8 percent of the index, Home Depot (HD ) 7.8 percent, Amazon (AMZN ) 7.6 percent, Lowe's (LOW ) 5.2 percent, CVS Caremark (CVS ) 5.2 percent.

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