“As the Federal Reserve is set to slowly reduce the pace of its asset purchases, the gap between 10-year Treasury yield and consumer confidence has begun to converge. Today, economic conditions as measured by consumer confidence would suggest that the 10-year real yield should be around 50 basis points higher if monetary policy were to normalize,” wrote Scott Minerd, global chief investment officer and a managing partner of Guggenheim Partners.
Consumer spending powers about 70% of the U.S. economy and consumer discretionary and retail ETFs have been stellar performers as U.S. stocks have ascended to record highs. However, higher borrowing costs, no matter good the data, could derail these ETFs if the Fed earnestly moves to taper.
SPDR S&P Retail ETF
ETF Trends editorial team contributed to this post.