In the face of still elevated inflation, the U.S. consumer remains a force to be reckoned with. Obviously, that’s a plus for the consumer discretionary sector and ETFs such as the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RSPD).
While inflation remains a thorny issue, it cannot be ignored that other U.S. economic data points — such as jobs data — remain sturdy. A healthy labor market is crucial in supporting (or harming) the case for consumer cyclical spending. Thus, it plays a pivotal role in charting the course for ETFs such as RSPD.
Real-time performance confirms the fund is benefiting from U.S. consumer strength. Year to date, RSPD has beaten its cap-weighted counterpart by a 4-to-1 margin while displaying slightly less volatility. That could be the start of something more substantial for the ETF, particularly if economic data remain supportive.
RSPD Somewhat Data-Dependent
The U.S. consumer drives roughly two-thirds of activity in the world’s largest economy. That underscores the importance of a vibrant labor market. In what could be good news for RSPD, the labor market is indeed strong.
“When we look towards the rest of 2024, we’re still expecting a healthy US consumer based on three key factors. The first is the labor market,” noted Sarah Wolfe of Morgan Stanley. “Obviously, the labor market has been holding up very well and we’ve actually been seeing a reacceleration in payrolls in the last few months. What this means is that real disposable income has been stronger, and it’s going to remain solid in our forecast horizon.”
There are other factors that could affect RSPD as 2024 unfolds. One is that the Federal Reserve’s plans for interest rates cannot be ignored. However, as Wolfe pointed out, many Americans are saddled with fixed-rated debt. And that isn’t as sensitive to changes in interest rates as is variable debt.
More Upward Pressure Expected
“Right now, debt service costs are still below their 2019 levels. We’re expecting to see a little upward pressure here over the course of this year – as rates are higher for longer, as housing activity picks up a bit; but we expect there will be a cap on it,” she observed.
Consumer spending and RSPD could gain further ballast from still impressive levels of real estate wealth in the U.S. That’s a scenario that could be further enhanced if rates fall and more baby boomers opt to downsize and enjoy some their home equity.
“And we’re expecting to see very little deterioration in housing wealth this year. So people are still feeling pretty good. [They] still have a lot of home equity in their homes. So overall, good for consumer spending. Good for household sentiment,” concluded Wolfe.
For more news, information, and analysis, visit the Innovative ETFs Channel.
