The Zhitong Finance App learned that recently, retail stocks have shown impressive performance and are close to breaking through key resistance levels. The SPDR S&P retail ETF (XRT.US) rose more than 6% in November to about $79.

Since 2022, the Federal Reserve has raised interest rates to curb economic overheating, and some retailers have been hit as a result. For example, Carvana (CVNA.US) was once on the verge of bankruptcy, but its stock price has yet to return to an all-time high; Victoria's Secret (VSCO.US) is facing difficulties due to declining same-store sales.

However, as the economic environment changes, the market's attitude towards retail stocks is also improving. Jeff DeGraaf, head of technical research at Renaissance Macro Research, pointed out that XRT is expected to break through the range. He stressed that since this year, the ETF's price range has remained roughly between $70 and $79, supported several times at $70, and is currently approaching the upper limit of the range. This shows that market participants are willing to buy at higher prices, reflecting expectations for a favorable future.

The main driving factor behind this rise in retail stocks was the November election results. Republican candidate Donald Trump was re-elected as president, and the Republican Party took control of Congress, making its policy proposals more likely to pass.

Trump's campaign platform includes reducing personal income taxes, which will free up more disposable income for consumers, thereby increasing retailers' sales and profitability. Although tax cuts may trigger a certain degree of inflation and cause the Federal Reserve to reassess the extent of interest rate cuts, in the short term, the effects of increased consumer spending due to reduced tax burdens may offset the impact of high interest rates on retail stocks.

Since this year, retail sales have increased by about 2% year over year. According to FactSet, analysts expect companies included in XRT to increase overall revenue by 2.8% next year. This increase will drive a steady increase in profits. Analysts expect a slight increase in net profit margins because the increase in product costs is less than the price increase, and expenses such as employee compensation, depreciation, and interest expenses will not increase significantly.

Overall, analysts predict that the ETF's earnings per share (EPS) will grow 9% next year to reach $5.46. Meanwhile, XRT's current expected price-earnings ratio is only 14.5 times, far lower than 22.3 times the S&P 500 index. If the retail sector's price-earnings ratio does not decline, then strong consumer spending will drive stock prices to rise further.

The continued rise in retail stocks depends on whether companies can provide growth guidance in line with market expectations in the fourth quarter. The next earnings season will be critical: Victoria's Secret will release its third-quarter earnings report in December, but the outlook for the fourth quarter is receiving more attention; Dollar General (DG.US) and Dollar Tree (DLTR.US) will also announce results in December; and TJX (TJX.US) will be the first to disclose earnings on November 20.

If these retailers can confirm on the earnings call that the first quarter or full year of 2025 results guidance is in line with market expectations, the rebound in retail stocks is expected to continue. This will be an important opportunity for investors to refocus on retail stocks.