Retail stocks jump on earnings, tax reform optimism; shares are up every day this week

Key Points
  • SPDR S&P Retail ETF (XRT) jumped almost 2 percent and is up more than 3 percent on the week.
  • Foot Locker comments on April sales, Mnuchin comments boost the stocks.
Trust the retail bounce?

Retail stocks surged Thursday as some better-than-expected earnings in the space caused some traders to bet the mall isn't quite dead yet.

Optimism that there won't be a costly border adjustment tax included as a part of President Donald Trump's tax reform also helped lift the shares for the fourth day in a row.

"The retail sector had been probably one of the most contrarian plays in the market, and it had been a function of the worries over the consumer slowing down spending, coupled with the problems plaguing brick and mortar," Prudential Financial market strategist Quincy Krosby said. "The retail sector got so beaten down that it became good."

Shares of the SPDR S&P Retail ETF (XRT) closed up almost 2 percent on Thursday, it's fourth straight gain. The ETF was on pace for its best day in two weeks, led in part by Abercrombie and Express, which were both up as much as 7 percent during the day. The broader Consumer Discretionary SPDR (XLY), which includes, jumped to an all-time high.

Retail ETF on pace for best week of the year

Shares of Abercrombie closed up 5 percent, while Express closed more than 7 percent higher.

Traders took comments from Treasury Secretary Steven Mnuchin at a policy summit in Washington to mean the administration was leaning away from the border adjustment tax. Mnuchin said there were aspects of the tax the administration liked and disliked.

Krosby also noted the influence of the BAT tax, saying, "The border adjustment tax was also another major factor affecting retail and the BAT added to the pain ... hearing that it's not going to be a make or break for tax reform has given a bit of relief to the retail sector."

Shares of Select Comfort closed up more than 28 percent after the mattress company reported a first-quarter earnings beat of 56 cents per share on revenue of $394 million. Street expectations were that earnings would be 45 cents per share on revenue of $370 million.

Foot Locker's shares likewise rebounded after CEO Richard Johnson boosted confidence with his remarks on April sales, saying, "Encouragingly, we are now having a strong Easter selling period, with April comparable sales likely up low double digits, which we see as confirmation that the customer's appetite for our exciting product assortments has not changed."

The retail ETF also surpassed its 30-day average volume of 5.1 million shares, to reach 6.34 million shares by midday trading Thursday.

Abercrombie shares 5-day performance

Express shares 5-day performance