Blowout sales failed to attract shoppers this holiday season, and retail exchange-traded funds dipped on weak holiday sales. MasterCard Advisors SpendingPulse, which tracks spending on popular holiday goods, said sales in the two months before Christmas climbed at their weakest pace in four years.

Investors scrambled to sell retail stocks this week, sending the Market Vectors Retail ETF (RTH) and PowerShares Dynamic Retail ETF (PMR) down more than 1%. The SPDR S&P Retail fund (XRT) dropped nearly 2% while investors pulled $170.71 million from the fund, according the Index Universe.  

“I was not surprised by the report at all,” said Brian Sozzi, NBG Productions Chief Equities Analyst. “Consumers were looking for the best possible deals and waiting to buy big ticket items. Also, worry over falling off the fiscal cliff is weighing on Wall Street.”

Retail holiday sales climbed 0.7% compared to one year ago, well below analyst expectations of 3-4%. And some fear the lackluster holiday sales report is just the beginning, leading analysts to warn the sluggish economy may reduce demand for goods.

“I’m very cautious of retail stocks and ETFs heading into next year.  We’re heading for a two prong effect,” said Sozzi.  “Profit warnings over the first few weeks in January will hit retail stocks hard.  After the initial drop, I expect stocks to trade sideways before falling further in February when chain store sales data is released.”

But despite the dismal outlook, retail and consumer ETFs are among the top performing sectors this year.

The Consumer Discretionary SPDR XLY is up 20.2% since January 1st, the second best performing S&P sector. XLY’s top holdings are Comcast (CMCSA), Home Depot (HD), Amazon.com (AMZN), McDonald’s (MCD) and Walt Disney (DIS).