“With the rise in interest rates, consumers may be in the early stages of a shift toward saving over spending – especially as inflation has remained benign, removing pressures to spend sooner rather than later…The sector’s earnings are also potentially at risk, with near-record profit margins and an increasing number of companies missing on earnings,” according to the note posted by Barron’s.
A strong dollar could also hamper XLY constituents such as McDonald’s (NYSE: MCD) and Starbucks (NasdaqGM: SBUX) that derive substantial portions of their revenue from international markets. Those stocks are both top-10 holdings in XLY.
Consumer Discretionary Select Sector SPDR
ETF Trends editorial team contributed to this post.