A popular retail exchange-traded fund is on pace for its best week since early December, and some strategists say retail stocks could see more upside.
The broader macroeconomic trends are quite bullish for retail names, said Gina Sanchez, CEO of Chantico Global. Citing economics research firm Oxford Economics, Sanchez said the economy is going to continue to expand this year. Retail sales can be viewed as a way to gauge economic health.
"But we think that big bounce is going to be a huge driver because of a lot of the retail sector is largely overvalued," Sanchez said Thursday on CNBC's "Power Lunch."
The SPDR S&P Retail ETF (XRT) is down nearly 1 percent this year, but it's up 1.65 percent this week, putting it on pace for its best week since its 5.11 percent gain for the week ending Dec. 9. It has risen 13.5 percent over the last year.
Retailers had been under pressure with the potential for a proposed tax plan by congressional Republicans to negatively impact the group. Such a plan would more heavily tax retailers that source their goods from abroad.
However, President Donald Trump said in a recent interview with The Wall Street Journal the tax plan appears "too complicated," raising uncertainty about its prospects.
And as investors await more quarterly earnings reports from retailers, the group is expecting about 13 percent earnings growth, said Erin Gibbs, equity chief investment officer at S&P Global.
"That's higher than we've seen in the past previous four years. It's higher than the S&P 500 and higher than consumer discretionary in general, so overall they're looking very attractive," Gibbs said Thursday on "Power Lunch."
Much of that growth comes from online retailers and direct marketers, Gibbs said. Amazon last week reported a quarterly earnings miss on revenue and earnings per share and offered weaker-than-expected guidance. A more traditional retailer, Michael Kors, last week reported a larger-than-expected decline in quarterly comparable sales (the amount of revenue at a retailer's location compared to the amount of revenue it generated the previous quarter), citing weaker sales in North America and Europe.