After a downbeat August, U.S. retail sales turned around in September, validating the solid U.S. growth momentum. Sales came in line with analyst estimates and grew 0.6% sequentially, following an upwardly revised 0.2% fall in August. On a year-over-year basis, sales grew 2.7% following an upwardly revised 2.1% jump in August.

Higher auto sales and increasing gasoline prices were behind this decent reading. Auto sales ticked up 1.1% following a 0.3% dip in the prior month and sales at service stations grew 2.4%. Notably, miscellaneous store retailers saw 1.8% sales growth and sporting goods and hobby witnessed 1.4% sales rise.

Restaurants and bars exhibited 0.8% sales expansion – the highest since February. Online retailers too saw a 0.3% nudge-up in sales. Barring spending at gas and autos, retail sales advanced a moderate 0.3%. Among the losers, sales at electronics and appliance stores fell 0.9%.

Accelerating wage growth can be credited for greater consumer confidence in September. Notably, average hourly pay was $25.79 in September, up 2.6% year over year.

Market Impact

The market reaction to September retail data was mixed as it strengthened chances of a rate hike this year end. Almost all core retail ETFs including SPDR S&P Retail ETF (XRT - ETF report) , VanEck Vectors Retail ETF (RTH - ETF report) and PowerShares Dynamic Retail Portfolio ETF (PMR - ETF report) shed gains on October 14, following the release of the data, though at a measure of less than 1%. Odds of gradual ending in easy money inflows probably restrained those ETFs from celebrating the sector’s gain.

Since traders are now betting on a 66% chance of a rate hike by December, up from 59% at the end of September, the U.S. dollar has gained strength. PowerShares DB US Dollar Bullish ETF (UUP - ETF report) was up over 0.5% on October 14, 2016.

Can the Wining Trend Thrive Ahead?

Investors should note that though retail sales picked up pace in September, the momentum may melt down in October. This is because consumer confidence suddenly dropped to a one-year low this month given the uncertainty over the presidential election. If this subdued sentiment reflects on retail sales, the upcoming reading may not be that reassuring.

ETF Impact

Below we highlight a few consumer discretionary ETFs that gained on October 14 and may lead the way ahead despite the overall somber sentiment over the sector.

First Trust NASDAQ Global Auto Index Fund (CARZ - ETF report) – Up 1.6% on October 14

The fund gives exposure to automobile manufacturers across the globe.

Restaurant ETF (BITE - ETF report) – Up 0.9% on October 14

The restaurant ETF looks to track the performance of U.S. restaurants.

Amplify Online Retail ETF (IBUY - ETF report) – Up 0.4% on October 14

The wind has been in favor of online retailing over the last few months. So, IBUY could be a good long-term pick.

PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (PEZ - ETF report) – Up 0.1% on October 14

The fund gives exposure to consumer cyclical stocks that are exhibiting relative strength.

Stock Picks

We also picked four retail-wholesale stocks on the basis of a VGM Style Score of ‘A’ and a Zacks Rank #1 (Strong Buy), at the time of writing. Our chosen stocks are:

Dick's Sporting Goods Inc. (DKS - Analyst Report) – Up 0.97% on October 14

It is a full-line sporting goods retailer in the U.S. Its industry is within the top 18% segment in the Zacks Industry Rank universe.

Tilly's Inc. (TLYS - Snapshot Report) – Up 1.18% on October 14

This is a specialty retailer in the action sports industry selling clothing, shoes and accessories. The industry rank is in top 43%.

Urban Outfitters Inc. (URBN - Analyst Report) – Up 1.11% on October 14

The company runs two business segments – a lifestyle-oriented general merchandise retailing segment and a wholesale apparel business. Its industry rank is within top 43%.

Marinemax Inc. (HZO - Snapshot Report) – Up 0.72% on October 14

The company is a recreational boat dealer in the U.S. Its industry rank is within the top 18%.