Retail is on pace for worst December ever, but new year rally could be ahead

There's been little yuletide cheer for the retailers.

The XRT retail ETF is down 17 percent this month, tracking for its worst December since its inception in 2006.

One market watcher says indiscriminate selling may have unfairly taken retail down.

"This is really more about the overall decline," Erin Gibbs, portfolio manager at S&P Global Market Intelligence, said on CNBC's "Trading Nation" on Friday. "We know that when markets are going down like this, correlations rise and everybody goes down. It doesn't matter how good your fundamentals look."

Major retailers Macy's, Nordstrom, Target and Kohl's have plummeted by 10 percent or more in December, while the S&P 500 has tumbled 12 percent.

However, come the new year, retail could even be in better shape than the rest of the market to continue to power higher, says Gibbs.

"Earnings growth for retailers are almost about twice the rate of the S&P 500," said Gibbs. "This actually looks like a really good entry point, valuations look attractive, so I'd say use this as an opportunity."

The XRT ETF's earnings are expected to rise by 17 percent in 2019, according to FactSet estimates. By comparison, S&P 500 profit growth is forecast to climb by 8 percent.

The XLY consumer discretionary ETF, which holds consumer-focused stocks such as Amazon and Nike, could also present a buying opportunity, according to Craig Johnson, chief market technician at Piper Jaffray.

"A lot of these names have already corrected meaningfully, and they've come back to some identifiable support here," Johnson said on "Trading Nation" on Friday. "Specifically for the XLY, I'll make the observation you've got about another 3 or 4 percent, then you're back to some very important support levels that you'd seen in 2017."

"You don't have a lot more downside, so the risk-reward is starting to look a lot better from a chart perspective," said Johnson.

A 4 percent drop from Friday's close would take the XLY ETF below $90, a level not seen since September 2017.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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