New data from the Commerce Department shows that U.S. retail sales edged up 0.2% in June, while a measure excluding gasoline climbed a stronger 0.7%. The control group, which feeds into GDP calculations, rose 0.5%, beating economists' expectations for a 0.4% increase in real consumer spending. The figures suggest that consumer demand remained resilient despite headwinds from inflation and higher interest rates.
Retail stocks led the market on Thursday, with the SPDR S&P Retail ETF (XRT) gaining 1.65% by mid-afternoon, while the S&P 500 ETF (SPY) fell 0.56%. The outperformance reflects a shift away from technology and toward consumer-focused sectors. The S&P 500 Equal Weight ETF (RSP) also rose 0.74%, while the tech-heavy QQQ Trust (QQQ) dropped 1.62%, highlighting a rotation into value and cyclical names.
Underlying the headline data, sales excluding gasoline and autos showed broad-based strength. Receipts at auto dealers and nonstore retailers each advanced 1.9%, while e-commerce got a boost from Amazon.com's (AMZN) Prime Day, which was held a month earlier than usual. However, the earlier timing could pose payback risks in July and August. Gas station receipts fell 5.3%, providing relief to consumers at the pump but dragging on the overall figure.
The control group sales, which strip out volatile categories like food services and building materials, rose 0.5% after an upwardly revised 0.8% gain in May. This metric is closely watched by economists as a proxy for underlying consumer spending. The strong reading prompted some forecasters to raise their second-quarter GDP estimates by at least 0.2 percentage points, with several now projecting growth of 2.4%.
Bond markets reacted to the data with a higher rate outlook. The yield on the 10-year Treasury note climbed roughly three basis points to 4.573%, reflecting expectations that the Federal Reserve may keep rates higher for longer. Meanwhile, initial jobless claims fell to 208,000, the lowest since May, underscoring a tight labor market that continues to support consumer spending.
Market strategists pointed to the growing weight of chip stocks in the S&P 500 as a key factor behind the divergence. Chip stocks now account for over 20% of the index, up from 8% a few years ago, according to Paul Nolte of Murphy & Sylvest. Weakness in semiconductor names dragged down the broader index, even as consumer and equal-weight funds gained. The spread between XRT and SPY widened to 2.21 percentage points, while the gap between XRT and QQQ reached 3.27 percentage points.
Despite the positive consumer data, risks remain. If gasoline prices rebound, the relief seen in June could be reversed. Additionally, slowing wage growth and declining savings rates may dampen demand in the third quarter. Nonetheless, the June report provides a solid foundation for continued economic expansion, with consumer spending remaining a key driver.
