On this episode of the “ETF of the Week” podcast, Tom Lydon discussed the Vanguard Consumer Discretionary ETF (VCR) with Chuck Jaffe of “Money Life.” The pair discussed several topics regarding the fund to give investors a deeper understanding of the fund overall.
Chuck Jaffe: One fund is on point for today, and the experts have talked about it. You’re listening to the ETF of the Week podcast. Yes. Welcome to the ETF of the week where we get the latest take from Tom Lydon. He’s the vice chairman at VettaFi, a company that has a full suite of research and tools available for you to be a better, well-informed, savvier investor in exchange-traded funds. Check it out at VettaFi.com. Tom Lydon, it’s great to chat with you again.
Tom Lydon: Great to be back. Thanks, Chuck.
The VCR ETF
Chuck Jaffe: Your ETF of the week is.
Tom Lydon: The Vanguard Consumer Discretionary ETF.
Chuck Jaffe: Ticker symbol?
Tom Lydon: VCR
The Consumer
Chuck Jaffe: Consumer Discretionary. You know it’s been the consumer that has been driving things. People keep waiting for the consumer to be exhausted. But I did notice that this fund just went above its 200-day moving average. So somebody thinks that maybe the consumer is not done yet. Is that the play here, Tom?
Tom Lydon: Well, you hit the nail on the head, Chuck. The consumer has been very, very resilient through the last couple of years. They just keep spending and spending on all the things you can imagine. It’s household goods, it’s home improvements, it’s food and entertainment. All of the areas where you would suggest with this correction that we’ve had in the market in a period of rising interest rates would feel a little bit of pain.
That’s what the Fed has been fighting with inflation and all. But guess what? There have been a lot of people who’ve had dry powder. They’ve had the money. They like the lifestyle. They may have been going into their credit card a little bit, but it’s been okay. Here we are today in a situation where, as we’re wrapping up the year, the Fed is signaling that they’re either close to being done or finished hiking interest rates.
There’s enough evidence for them to say they’ve done their work in bringing inflation down. There’s also concern about what happens with the economy. And if we have a soft landing and they’ve got their finger at the trigger, that if in fact, things get weak in the economy, they can once again lower interest rates, which would be really good for stocks.
And that’s what the market’s been sensing the last couple of weeks, as we’ve had a pretty good spike in the market the last couple of weeks going into this new year. It would be great to see no more hikes and consent to continued earnings that have exceeded expectations.
Are Some Consumers Stressed?
Chuck Jaffe: It would be great to see that. It would be great to see a Santa Claus rally. There are a lot of things that would be great to see. Do you have no concern at all for all those numbers that tell us, you know, $1,000,000,000,000 in credit card debt? And I mean, we talk all the time about consumers or investors having money on the sidelines, but the signs are that consumers are stressed. So even though things are going to be better, don’t we need some recovery time or is this a case of it’s a pure 200-day moving average play? It got their ride. The consumer while you can.
Tom Lydon: Chuck some consumers are stressed and unfortunately it’s the lower end of the payroll that is stressed by mid-size larger pay type of consumers. The retired folks are looking at it as “oh boy.” Yes, we saw a little pain in the last couple of years, but I like my lifestyle. I’ve got the money I’m going to continue to spend. And we’re seeing that in earnings in areas right across the board.
There are the auto sector, for example, casinos and gaming, electronics, education services, all the clothes, sneakers, footwear, stuff like that. It’s all continued to be pretty strong. But yes, there is concern about lower-paid consumers are they tapping out their credit cards or are they having trouble with higher rents and variable mortgage payments that, as you can imagine, have gone up incredibly!
So, it’s important to identify which area of the market the consumers are in pain and what they represent to the overall economy. And as you know, there are a lot of mid-size income earners and large income earners that have the lion’s share of the economy. And based on how they’re feeling, that’s really how the economy goes.
Should You Tilt Your Portfolio in This Direction?
Chuck Jaffe: One of the things that I ask fairly often is where does the money come from or do you already have exposure? This is focused on consumer discretionary, but it’s not like most people don’t have some consumer discretionary in their portfolio. So is this a case of you want to get that money that’s on the sidelines to work and you don’t want to change what you have invested? And if somebody is fully invested, maybe not so much. Or is this a case of, yeah, tilt your portfolio in this direction?
Tom Lydon: Another good point. So there’s $7 trillion in money market funds. There’s another $8 trillion in bank CDS, a record amount of money that’s on the sidelines, a lot of dry powder. And again, it’s not the lower-paid people that have all these savings. It’s folks that have good jobs, and dual incomes growing with the economy as well. But it made them feel good to have some money that’s safely on the sidelines.
What usually happens is when the economy comes back or markets come back, they end up putting that money back to work. All we need is a little of that 15 trillion to come back into equities and we should really see an added boost to the marketplace. No guarantee that that’s going to happen because, look, people are comfortable getting 5% in a CD or money market fund.
The big thing, though, is if we do see rate cuts as we go into ’24 and they’re not getting paid as much and the market’s coming back, their stomach is telling them long term, we need to go for growth. So if we have a chunk of our money that’s on the sidelines, we’re not going to make it getting not 5% anymore, but 4% or 3%.
We’re not we’ve got to put that money back to work. This ETF really is a good litmus test for the average consumer out there because it covers all the different consumer discretionary sectors.
Different Experiences
Chuck Jaffe: With that being the case, is this also a fund? You know, we frequently talk about a two-day moving average. Throw that out for a second. I talk on my show Money Life, with guests every day who are coming up with hard landing, soft landing, or whatever the scenario is that they see for next year. So if we get to a spot where next year people can look and go, “Oh, here’s the recession, it’s here at last,” is that a point where you might say in recession, consumer discretionary? Not so much.
Tom Lydon: I think you and I just have our own personal experiences, can see what’s going on right now. I mean, I was out Friday and Saturday night at a restaurant that was packed. My son had to bring his car over to the dealership to get a new battery. Before he left, they said, “We love your car. It’s in demand. Can we buy it?”
And then turned to me and said, “We will buy your car, too.” So there are little things that you see that are going on out there which tell us that even though people are expecting recession, it may not happen. Or if it does, it may be very short-lived. The worst thing that can happen if you’re a long-term investor and you’re looking for long-term growth and diversification is to have a bunch of money on the sidelines and then wait for two years of an up move in the market and then at that point feel comfortable enough to put it in by using an ETF like this and following it on the 200-day average, it ensures you are participating. If the economy and the consumer do well, it also gives you an exit strategy. If you go back below the 200-day average to keep that money safe.
Closing Thoughts
Chuck Jaffe: It’s VCR, not that old piece of junk machine that you had that was gathering dust somewhere in your house. But no, the Vanguard Consumer Discretionary ETF, the ETF for the Week from Tom Lydon. Tom, we’ll see you again next week.
Tom Lydon: Thanks, Chuck.
Chuck Jaffe: The ETF for the week is a joint production of VettaFi and Money Life with Chuck Jaffe. Yup, I am Chuck Jaffe. Want to learn about my hourlong weekday podcast? Go to moneylifeshow.com or search for it wherever you find a good podcast. If you want to get more information and make sure that you’re getting good ETFs, well no better place to look than VettaFi.com. They’ve got a full suite of tools for you there and they’re on Twitter or X @Vetta_Fi. @TomLydon my guest there, is the vice chairman of VettaFi, and he’s on Twitter too. The ETF for the week is here for you every Thursday. We’ll be back next week. And until then, happy investing, everybody.
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