U.S. households are expected to open up their wallets and save less in the months head, potentially spurring growth in the consumer sectors and discretionary-related exchange traded funds.
Consumer discretionary stocks have remained relatively flat in the past few weeks. Over the past month, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) dipped 0.5%, First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) was down 0.5% and Vanguard Consumer Discretionary ETF (NYSEArca: VCR) was up 0.1%. [Taking Stock of a big Consumer Discretionary ETF]
However, things could pick up in the second half of the year. Jason Furman, chairman of the White House’s Council of Economic Advisers, argued that American consumers could spend more and save less ahead, reports Jeffrey Sparshott for the Wall Street Journal.
”I continue to think a lot of what was powering the economy last year was consumers,” Furman told the WSJ. “I continue to think that will be a good part of our economy. It’s taken a little longer to get going but we did start to see that in May.”
U.S. consumers, who make up 70% of the country’s economic output, have diminished their debt loads, are exhibiting rising confidence and are enjoying an income boost through lower energy prices. [Retail ETFs Could Pull Ahead in Second Half]
”I think we have not seen the full benefits of the decline in oil prices yet,” Furman added.
Additionally, while the savings rate spiked recently, Furman believed that consumers will eventually loosen their wallets and return to normal saving rates.
”As [the saving rate]comes down that would lead to elevated consumer spending,” Furman said.
As consumers begin spending more, discretionary sector stocks would begin to gain momentum. For instance, XLY tracks consumer discretionary stocks from the S&P 500. The smart-beta FXD follows an enhanced index that selects stocks based on value and growth factors, but the ETF may been seen as more value-oriented than other discretionary ETF options. VCR is much more diversified, including large-, medium- and small-cap stocks in the discretionary space.
XLY and VCR follow more market-capitalization-weighted indices, so large companies like Walt Disney (NYSE: DIS) and Amazon (NasdaqGS: AMZN) make up large positions in the ETFs’ portfolios. On the other hand, FXD equally weights components so it has a greater tilt toward mid- and small-cap stocks.
Consumer Discretionary Select Sector SPDR
For more information on the consumer sector, visit our consumer discretionary category.
Max Chen contributed to this article.