Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY) rallied to a lifetime high on Tuesday as cyclical sectors lead the market.
XLY, the largest ETF for the sector, is up 23.5% so far this year to outperform the broader market. The iShares S&P 500 (NYSEArca: IVV) has posted a total return of 16.3%.
The consumer discretionary ETF is in a two-day breakout following data last week showing retail sales rose 0.3% in November. About two-thirds of the U.S. economy is tied to consumer spending.
The recent outperformance of cyclical sectors that are sensitive to the economy such as consumer discretionary and financials are seen as a positive sign for the overall market. [Bank Bulls Drive Year-End Breakout Hopes in Financial ETF]
“Investors should take note that the Consumer Discretionary Select Sector SPDR is a cyclical play tied to consumer spending. As a result, it’s not an ETF to own when the United States is facing a prolonged recessionary environment. At the same time, cyclical firms usually do rally before the economy fully emerges from a slump,” Morningstar writes in a profile of the ETF.
“In recent months, consumer sentiment has rebounded nicely. However, income isn’t growing much, so even with slight gains in employment, continued expansion may be stunted or halted altogether if there is not more job growth,” according to the investment research firm.
ETFs tied to the retail sector are getting a boost from optimism that leaders in Washington will be able to hammer out a deal on the U.S. fiscal cliff. Hopes for a solid holiday shopping season are also likely driving consumer discretionary funds. [Holiday Sales Help Lift Retail ETFs]
Consumer Discretionary Select Sector SPDR Fund