2 ETFs for This Never-Ending Winter

03/18/2014 7:00 am EST

Focus: ETFs

Everyone is blaming the poor economic numbers we have been seeing on the misery of the horrific winter, notes George Leong on FXEmpire.com, as he offers two ways to play on the current pessimism.

Federal Reserve Chair Janet Yellen suggested that the winter was to be partly blamed for the somewhat lousy economic readings in December through to February. With the fierce winter, people are hesitant to venture out to look for work, buy groceries, eat at restaurants, go and watch a movie, or even travel.

While I do agree the harsh winter has impacted the economy somewhat, you can’t blame everything on the weather. If this were true, then we would be starting to witness pent-up demand for goods and services in the upcoming months as the snow and cold dissipate.

Or maybe it’s just because the economy is stalling to some degree.

The jobs market is lousy and will need to pick up some momentum. Maybe with the warmer weather to come, job seekers will venture out and look for work, or perhaps companies are just not hiring as much as the government wants to see, given all of the monetary stimulus that has been spent on driving consumer spending in the country.

The one area that looks pretty fragile at this time is the retail sector. Consumers simply appear to be holding back on expenditures and waiting for deep discounts.

In January, the retail sector reported a 0.4% decline in sales, representing the second straight month of declines on the heels of a revised 0.1% decline in December, according to data from the US Department of Commerce. It’s likely the extreme bad weather conditions in January and February contributed to the soft results—at least we hope that’s the case.

Yet despite winter’s impact, the retail sector is clearly under some duress that would have occurred regardless of the weather. The winter may have just brought up the issues faster.

Office supplies company Staples, Inc. (SPLS) announced recently that it would close the doors on up to 225 of its 1,846 stores in the United States and Canada. Yes, the weather may be partly to blame, but it takes a lot more than a few months of winter misery to cause this. Staples blamed lost sales to the big mass market chains and online spending in the retail sector. Yet with the muted growth in corporate America, I’m not surprised to see this.

The problem is that the mass market retailers Staples is alluding to, such as Wal-Mart Stores, Inc. (WMT), are also struggling to attract consumers to their doors. Yes, it’s to do with the winter, but there are clearly other forces at work that are driving down spending in the retail sector.

Revenue growth was a mere 1.4% in fiscal 2014 for Wal-Mart. Then we have big-box store Costco Wholesale Corporation (COST), which was short by $0.12 per diluted share in its fiscal second-quarter earnings season. The company, surprisingly, didn’t blame the winter conditions but rather sluggish sales.

So, maybe there’s more to the sluggishness in the economy and retail sector than just the winter weather.

The reality is that spending is down because people are less confident in their jobs and the economy. The lower and middle classes are hurting the most, and this is a major reason.

As such, I would be careful to buy the retail sector at this time. You can play a potential downside via aggressive short retail sector exchange-traded funds (ETFs), such as Direxion Daily Retail Bear 3X Shares (RETS) and ProShares UltraShort Consumer Goods (SZK).

By George Leong, Contributor, FXEmpire.com

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