In a global macroeconomic environment fraught with high inflation, consumers are stressing needs over wants, but that’s not to say they’re abstaining from the latter completely. That’s evident in the Direxion Daily Consumer Discretionary Bull 3X ETF (WANT) having risen 70% within the past year.
Despite elevated interest rates and inflation, consumers aren’t choosing to avoid spending on nonessentials. In 2023, constant worry surrounded the Federal Reserve’s aggressive interest rate hiking that could potentially spin the economy into a recession. Now, that appears less likely, as economic growth continues to hum along despite tight monetary policy conditions.
“The U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%,” a Zacks article published in Yahoo Finance confirmed. “On Mar 7, the Atlanta Fed GDPNow tracker forecast a 2.5% growth rate for first-quarter 2024, indicating no chance of a near-term recession.”
From a micro level, another reason there hasn’t been a profound drop in consumer discretionary spending is the rise of personal income. In turn, this is also benefiting personal expenditure numbers, with both in line with consensus estimates.
“Meanwhile, personal income increased unexpectedly by 1% in January compared with the consensus estimate as well as December’s reading of 0.3%,” the report added. “Personal consumption expenditure increased 0.2% in January in line with the consensus estimate.”
Given that notion, WANT might be something short-term traders could consider when it comes to maximizing profitability. The fund seeks daily investment results equaling 300% of the daily performance of the Consumer Discretionary Select Sector Index.
When the Fed finally cuts interest rates, that could also boost WANT. That’s because consumers are even more willing to spend if loan costs are minimized. This should also be a boon to the overall retail sector, which poses another opportunity.
Leveraging the Retail Sector
In a report regarding the global retail outlook for 2024, tax consulting firm Deloitte is forecasting more growth, according to survey respondents privy to the retail market. That’s especially the case given the influence of artificial intelligence (AI) technology and how it influences consumer behavior.
“Despite economic clouds, retailers see sunshine,” the report said. “Technology like artificial intelligence (AI) is fueling optimism for growth in 2024, even amidst inflation, labor shortages, and global tensions.”
Given this, traders may also want to look at the Direxion Daily Retail Bull 3X ETF (RETL). The fund seeks daily investment results of 300% of the daily performance of the S&P Retail Select Industry Index.
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