With consumer confidence on the rise and fewer applications filed for unemployment benefits, consumer discretionary stocks and related exchange traded funds might find further support as Americans increase to spending.
Over the past month, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) gained 4.6%, Vanguard Consumer Discretionary Index Fund (NYSEArca: VCR) rose 4.5% and First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) increased 4.6%. [Waiting on a Discretionary Rebound]
The Labor Department revealed that jobless claims dipped to 312,000 for the week ended June 14, the lowest in almost seven years, while households this month were the most optimistic about the economic outlook in a year, Bloomberg reports. Additionally, the index of leading indicators rose in May for the fourth straight month.
“The economy will look healthier in the second half of the year,” Michelle Meyer, senior U.S. economist at Bank of America Corp., said in the article. “It’s a combination of factors moving in the right direction reinforcing one another: manufacturing building momentum, the labor market continuing (INJCSP) to improve and support consumer spending and business investment turning higher.”
Additionally, job growth is looking positive, with fewer firings. Employers added 217,000 to payrolls in May, bringing the monthly average to 213,600 this year, the most since 1999.
“The job market continues to improve,” Ryan Sweet, senior economist at Moody’s Analytics Inc., said in the article “It suggests we’re going to have another decent gain in” job creation this month.
The improved job creation, along with additional wages going into the pockets of American consumers, has also helped offset rises in consumer prices.
“Sustained improvement in the labor market and modest wage gains appear to be offsetting rising food and gasoline costs,” Joseph Brusuelas, senior economist at Bloomberg LP, said.
State Street’s SPDR consumer discretionary ETF tries to track every consumer discretionary stock from the S&P 500 index, which accounts for about 12% of the broader index. XLY has a 0.16% expense ratio.
The Vanguard ETF tracks large-, mid- and small-cap U.S. consumer discretionary companies. VCR has a 0.14% expense ratio.
The First Trust ETF takes a smart-beta index-based approach, employing the AlphaDEX methodology to select stocks based on growth factors such as three-, six-, and 12-month price appreciation, sales/price, and one-year sales growth, along with value factors such as book value/price, cash flow/price, and return on assets. FXD has a 0.70% expense ratio.
Consumer Discretionary Select Sector SPDR
For more information on the consumer discretionary sector, visit our consumer discretionary category.
Max Chen contributed to this article.