The stock market’s striking decline in recent days does not mean that investors have no place to take advantage of an economic rebound. One of the most likely sectors to attain sustained growth is retail.

The SPDR S&P Retail ETF (XRT) is a fund that seeks to replicate as closely as possible, before expenses, the total return performance of the S&P Retail Select Industry Index. State Street Global Advisors designed the ETF to produce portfolios that have low turnover, accurate tracking and reduced costs. The chart below shows how well the fund has performed in recent months.

A big factor in this fund’s favor is that consumer confidence is starting to rise again, and that trend should buoy the prospects for retailers significantly. A key indicator that recently grabbed my attention is the Conference Board Consumer Confidence Index, which climbed to 52.3 in March and rose further in April to 57.9. The index now is at its highest reading in about a year and a half. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households, and it has become a respected barometer of projected consumer spending. The latest survey results, released April 27, found that the percentage of consumers expecting business conditions to improve in the next six months climbed to 19.8% from 18%, while those predicting that conditions will worsen dipped to 12.6% from 13.6%.

Consumers also expressed increased optimism about the jobs outlook. The percentage of consumers anticipating more jobs in the months ahead increased to 18% from 14.1%, while those expecting fewer jobs declined to 20% from 21.4%. Reduced fears of job losses also should bode well for retailers.

In addition, U.S. government economic data for the first quarter of 2010 provides reason for optimism. Real gross domestic product (GDP) -- the output of goods and services produced by labor and property located in the United States -- grew at an annual rate of 3.2% in the first quarter of 2010, compared to the fourth quarter of 2009, according to preliminary data from the U.S. Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6%, so the U.S. economy clearly is on the upswing.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, and nonresidential fixed investment that more than offset decreases in state and local government spending, as well as a decline in fixed investment. Imports, which subtract from GDP, increased. However, rising imports are a sign of increased consumption.

I currently am not recommending XRT, but I am watching it closely here. If you think the rise in retail is sustainable as the economy recovers, this ETF is a fund that you may want to consider adding to your portfolio during market pullbacks.

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