The Consumer Discretionary Sector, the sector that includes goods and services that are considered non-essential by consumers, but desirable if their available income is sufficient to purchase them, has had a big year in 2019 so far, recovering nearly 31% since the Christmas Eve lows last year, although is off nearly 1% today.
Consumer discretionary goods are typically represented in the S&P 500 by the Consumer Discretionary SPDR ETF (XLF).
The Consumer Discretionary Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Consumer Discretionary Select Sector Index (the “Index”), and seeks to provide precise exposure to companies in retail (specialty, multiline, internet and direct marketing); hotels, restaurants and leisure; textiles, apparel and luxury goods; household durables; automobiles; auto components; distributors; leisure products; and diversified consumer services.
Consumer spending, which accounts for over two-thirds of U.S. GDP, climbed 4.3% (which was the best performance since the fourth quarter of 2017). Government consumption expenditures and gross investment rose 5%, the fastest rate since the second quarter of 2009. However, business investment slumped 5.5%. Nevertheless, while the GDP scorecard shows that though there are areas of weakness, the U.S. economy is better positioned than most developed economies.
The labor market is consistent as well. “The recession talk was always overstated,” said Michael Arone, chief investment strategist at State Street Global Advisors, as quoted on CNBC. “The economic data continue to suggest that the economy isn’t near recession, at least in the next year or so,” per State Street Global Advisors.
With the economy performing well, ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY) and iShares Evolved U.S. Consumer Staples ETF (IECS) should be in a beneficial position. Both funds added 0.5% and 1.6% on Jul 26.
Despite the robust performance from XLY, the sector and ETF are weighted down today by inconsistent results from Amazon, whose second-quarter earnings gave investors a mixed bag of things to like along with things to carefully consider before jumping into shares of the online retail giant. The company’s higher revenue was counterbalanced by an earnings miss, which puts exchange-traded funds (ETFs) with heavy weightings of Amazon on watch.
Amazon was down almost 2% Monday while Home Depot was off slightly, McDonald’s was up nearly 0.75%, Starbucks was off 0.5%, and Nike off 0.25% to round out the sector.
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