What the Financial Bill Means for Consumer and Real Estate ETFs

July 23rd at 11:00am by Tom Lydon

The sweeping financial reform bill is now a law. While most people know what it’s supposed to mean for Wall Street banks, fewer, perhaps, understand what it will mean for consumers and consumer exchange traded funds (ETFs).

The bill includes measures that will provide the Feds with new power, allow the government to  shut down large financial companies on the verge of failure, change the rules on how financial firms engages risky and speculative behavior and give shareholders a greater voice in executive pay, writes Miranda for Financial Highway. [Financial ETFs: 5 Positives of Reform.]

Additional measures that could impact the ways Americans spend include:

  • The creation of the Consumer Financial Protection Bureau will bring regulation of consumer financial products and services under one agency. Private student loans will also be under the supervision of the CFPB.
  • New mortgage lending rules that will dissuade lenders from lending to people who can’t afford the loan and stop predatory practices seen before the housing bubble.
  • All accounts will be permanently insured by the FDIC for up to $250,000. Additionally, consumers are entitled to a free credit score.
  • The SEC may decide to force brokers to adhere to the same fiduciary requirements as financial advisors.
  • Merchants can now put in place a $10 minimum for credit card purchases and require them to pay cash for small ones.

What could this mean for ETFs? Several possible things spring to mind:

  • Home loans may be harder to come by, which could in turn scale back growth in real estate ETFs. The days of “no income, no assets” loans may now be over. [Homebuilder ETFs Lose Steam.]
  • In this day and age of plastic, merchants requiring $10 minimums (that is, if any of the large, publicly-traded ones do this) may see some drop-off in business as consumers seek out places that will take their debit for any amount. [Luxury ETF Takes a Hit As Rich Scale Back.]

There’s been a lot of speculation about what this new law will mean for many areas of the economy, but the fact is that we won’t really know until we see it in action. The easiest way to watch is by keeping an eye on ETFs that could be directly or indirectly impacted and watch the 200-day. By signing up for alerts, you won’t miss a trading opportunity.

For more information consumer trends, visit our consumer discretionary category.

  • Financial Select Sector SPDR (NYSEArca: XLF)
  • Claymore/Robb Report Global Luxury Index ETF (NYSEArca: ROB)
  • First Trust Consumer Discretionary AlphaDEX (NYSEArca: FXD)
  • iShares Dow Jones U.S. Consumer (NYSEArca: IYC)
  • SPDR S&P Retail (NYSEArca: XRT)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.