Cause for Concern with Consumer ETFs

The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) gained nearly 10% last year, good for the best performance among the sector SPDR exchange traded funds, but 2015’s top-performing sector could face some challenges early in 2016.

With wages up and inflation low, the University of Michigan revealed consumer sentiment rose to 92.6 in December, or just shy of the 92.9 average for 2015, the highest reading since 2004, Reuters reports.

“The December gain was largely due to lower inflation, which bolstered real incomes and brightened buying plans for household durables,” the survey’s chief economist, Richard Curtin, said in a release. “Indeed, there have been only three surveys in more than the past half century in which a higher proportion mentioned the availability of price discounts for durables.”

Spending on durable goods, which include automobiles, rose 1.1% after adjusting for inflation, reports Sho Chandra for Bloomberg.

Meanwhile, the consumer sectors are being supported by increased spending as Americans enjoy improved employment rates, cheap gasoline and rising home-equity. Moreover, retailers are also capitalizing on the increased foot-traffic as shoppers take advantage of holiday discounts.