For those who have been seeking targeted exposure to particular sectors of the equity market, the consumer discretionary sector may not have popped up as the top pick. However, choosing to not allocate to the sector at this moment could prove to be an oversight in the long run.
Key Takeaways
- Some investors may have strayed away from consumer discretionary stocks due to inflationary pressures, but the sector has plenty of merits right now.
- For those opting to consider consumer discretionary exposure, an ETF that invests in a broad selection of stocks in the sector could be the way forward.
- The State Street Consumer Discretionary Select Sector SPDR ETF (XLY) provides compelling exposure to the consumer discretionary stocks within the S&P 500, all within a low-cost ETF wrapper.
Right now, some are hesitant to dive into consumer discretionary stocks due to the worries of inflation. Now that the Fed is considering increasing interest rates, concerns are mounting over how lower-earning Americans are going to navigate discretionary spending.
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That being said, there are a few things working in favor of the consumer discretionary sector right now. For one, even if inflation impacts many consumers across the country, the K-shaped economy means that high earners are likely to keep spending on vacations, cars, luxury goods, and more.
Meanwhile, we are even seeing some data show that discretionary spending plans are on the rise. Deliotte’s latest State of the US Consumer report showed that discretionary spending intent is heading back to positive levels, moving in the right direction for the second month in a row.
Advisors and investors considering a pivot towards consumer discretionary stocks could benefit from doing so through a broad approach. By investing in an ETF that allocates to a variety of consumer discretionary stocks, folks can appreciate the opportunities within the sector while mitigating the risks that inflation could have on the performance of an individual security.
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XLY: Broad Access to the S&P 500’s Consumer Discretionary Picks
As just one example, look to the State Street Consumer Discretionary Select Sector SPDR ETF (XLY). XLY leverages the advantages of the ETF wrapper to offer diversified consumer discretionary exposure through a low-cost, tax-efficient means.
To do so, XLY invests in companies within the S&P 500 that are part of the consumer discretionary sector. This includes tech-forward holdings like Amazon and Tesla, diversified with other companies like Lowe’s, McDonald’s, and Marriott International.
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It’s worth noting that XLY has seen noticeable growth across recent months. Quarter-to-date, the fund’s NAV has risen 10.95%, as of May 31, 2026. This performance highlights that there is more opportunity within the consumer discretionary sector than some may recognize at this moment.
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