Traders: Keep Consumer Discretionary in Back Pocket

All eyes will be on the Federal Reserve as the capital markets are hoping for an equities boost with an interest rate cut, but traders may still want to keep consumer discretionary plays in their back pocket. A dovish central bank who is wary of the economy may warrant plays in exchange-traded funds (ETFs) like the Direxion Daily Consumer Discretionary Bull 3X ETF (NYSEArca: WANT).

WANT seeks daily investment results equaling 300 percent of the daily performance of the Consumer Discretionary Select Sector Index. WANT is capitalizing off a strong start to 2019 with two consecutive months of phenomenal gains–up 23 percent in June and another 33 percent in July.

It could get an even bigger boost with the assistance of online retail giant Amazon.

“This week we’ve got XMAS in July with Amazon Prime day,” wrote Sylvia Jablonski, Managing Director and Institutional ETF Strategist at Direxion Investments, in an email. “There are three things that drive the economy: investment, exports and consumption and with the latest retail print and seemingly healthy consumer, we see consumption as the bright glimmer in sustaining the economy and helping to keep up the consumer discretionary sector.

“Amazon-thought shares dropped in the short term on weaker than expected earnings (mixed 2nd quarter beating sales but missing on earnings–partly due to an 800 million dollar investment, shares are up 33% this year, beating the S&P’s 20%). Also Amazon’s investment goes to 1 day shipping, warehouse expansion, expansion to india- most analysts give a pass to Bezos as his investments usually do come through.”

Additionally, cloud computing is also been a primary revenue driver for Amazon.

“Cloud is one of their biggest success stories,” noted Jablonski. “And, its part of a bigger story. Consumer Discretionary has been strong- we’ve seen solid performance and interest in our etf “want” 3x daily consumer discretionary.”

We also saw this when Microsoft reported its second-quarter earnings last week as the software giant ousted analyst expectations with $1.37 earnings per share as opposed to Wall Street forecasts of $1.21 EPS. Notably, for the first time in three years, Microsoft’s cloud computing segment added more revenue versus the core productivity and business processes segments.

Microsoft’s Intelligent Cloud segment is shored up by products like Azure, SQL Server, Windows Server, Visual Studio, System Center, consulting services and support. In particular, the growth of Azure is at 64 percent on an annualized basis in the fiscal fourth quarter.

As more and more companies are shifting their business processes to cloud computing, the demand for products like Azure will continue to experience growth.

Conversely, the Direxion Daily Consumer Discretionary Bear 3X ETF (NYSEArca: PASS) seeks daily investment results equal to 300 percent of the inverse of the daily performance of the Consumer Discretionary Select Sector Index, which is provided by S&P Dow Jones Indices and includes domestic companies from the consumer discretionary sector.

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