The iShares U.S. Consumer Services ETF (NYSEAarca: IYC) is up more than 27% year-to-date, highlighting the strength in domestic consumer cyclical stocks. That’s a theme some analysts believe will persist in 2020.
IYC seeks to track the investment results of the Dow Jones U.S. Consumer Services Capped Index. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of domestic equities in the consumer services industry.
IYC allocates nearly 10% of its weight to e-commerce giant Amazon (NASDAQ: AMZN), which recently reported record holiday sales. What started as an book retailer has now turned into a global retail powerhouse as Amazon could be the most important company to watch in 2020. As such, investors should be keen on watching ETFs that have the heaviest holdings of Amazon.
Inside IYC
Goldman Sachs now feels that the U.S. economy is ready to bounce back with certain stocks poised to reap the most upside from the economic recovery.
According to Goldman, cyclical stocks, those generally associated with strong economic growth, have led the record-setting stock market rally in the past three months. While the S&P 500 surged about 8% during the period, cyclical stocks have outperformed their defensive counterparts, staging a return of about 12%, Goldman noted. The investment bank prognosticates that this trend will continue given there is a rebound in the U.S. economy.
Goldman isn’t the only bank bullish on consumer discretionary names. Count Bank of America Merrill Lynch among the supporters of IYC.
“Our strategists see a bull scenario in the sector, with a higher than normal savings rates at this point in the cycle, that is supplemented by a more dovish Fed encouraging consumer to save less, and borrow/spend more. We see retail sales and consumer confidence have remained solid,” said the bank in a recent note.
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Consumer sturdiness has BofA constructive on IYC.
“Meanwhile, trade tariffs on consumer goods seem to keep getting postponed. This sets a solid backdrop for an upside in the consumer discretionary sector. We believe iShares US Consumer Services ETF provides a great means to access this sector’s upside opportunity,” according to BofA.
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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.