Retail sector ETFs are trading at all-time highs as consumers grow more confident to spend and borrow after years of deleveraging in the wake of the financial crisis. However, March retail sales likely slowed after February’s data revealed the largest increase in five months.
Consumer discretionary ETFs have been leading the market higher during the latest rally that kicked off last November despite lingering worries over a soft job market, the sequester and massive Federal Reserve stimulus.
Yet the consumer deleveraging process may be coming to an end after years of hunkering down.
U.S. households increased their borrowing at an annualized rate of 2.4% in the fourth quarter, the largest jump since 2008, The Wall Street Journal reported.
“The fourth quarter marks the end of household deleveraging in the U.S.,” said Harm Bandholz, chief U.S. economist at UniCredit, in the article.
From a technical perspective, Investors Intelligence analyst Tarquin Coe notes Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) has maintained its uptrend of the past five months.
“The fact that this area remains strong, with a record price high being recorded just last Wednesday, indicates that the general market remains in rally mode. Should this industry start to sag, then it would be a concern but as yet, there is no sign of that,” he wrote in a newsletter Monday.
XLY is up 14.1% the past six months, compared with a gain of 8.6% for SPDR S&P 500 ETF (NYSEArca: SPY).