Consumer Discretionary ETF Returns In Full, Could Offer More Upside

The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest ETF dedicated to consumer cyclical stocks, rallied all the way back from its March lows and closed at an all-time high Monday.

The sector is one offering investors more gains. Recent performers that stood out have also been those that were previously hardest hit by the coronavirus-driven fallout in the markets.

“But the summer months and a shift in coronavirus rules have produced a change in market leadership that threatens to temper the stay-at-home trade in favor of another group of equities,” reports CNBC. “Cyclical stocks — those that ebb and flow with the strength and weakness of the broader U.S. economy — are now back in the limelight.”

Examining XLY

XLY, often heralded for having one of the largest Amazon allocations among all ETFs, seeks investment results that correspond to the price and yield performance of publicly traded equity securities of companies in the Consumer Discretionary Select Sector Index. The index includes securities of companies from the following industries: retail; hotels, restaurants and leisure; textiles, apparel, and luxury goods; household durables; automobiles; auto components; distributors; leisure products; and diversified consumer services.

Amazon’s growth also reflects a growing trend in consumer habits as other retailers with more significant bricks-and-mortar presence struggle. The rebounding U.S. economy is expected to facilitate more gains for cyclical sectors, including consumer discretionary.

“To be sure, the U.S. economy has a long way to go before the unemployment rate returns to level seen earlier this year, and gross domestic product growth figures start to show signs of positive momentum,” according to CNBC. “Economists like JPMorgan’s Michael Feroli say it’s important to keep in mind that the yield on the benchmark 10-year Treasury note is still just 0.9%, a reminder that economic growth and inflation could be more modest even years from now.”

With the Federal reserve having cut interest rates recently, and coronavirus concerns ebbing, there may be a decent chance for continued economic bolstering.

Investors are starting to renew their faith in XLY. Since the start of the second quarter, the fund has taken in more than $633 million in new assets.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.