This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Uptick in Consumer Spending Could Mean a Second-Half Market Rally

NEW YORK (TheStreet) -- The exchange-traded fund representing companies sensitive to economic cycles is doing far better than the ETF of companies selling food and other necessities consumers need. That could mean better times in this back half of the year for the economy and the stock market as consumer sentiment improves.

The Consumer Discretionary Select Sector SPDR (XLY) includes Walt Disney Co (DIS), Amazon (AMZN), Home Depot (HD), McDonald's (MCD), Ford Motor (F) and Starbucks (SBUX). It is currently trading around $67, down a fraction for the year to date.

Read More: Kinder Morgan May Target Oil, Gas and Coal After $71 Billion Deal

By contrast, the Consumer Staples Select Sector SPDR (XLP) includes Procter & Gamble (PG), Coca-Cola (KO), Philip Morris International (PM), Wal-Mart Stores  (WMT), and CVS Caremark (CVS). that ETF trades at $44, up 2.8% for the year to date.

Until recently, spending was tight. But consider the chart below.

XLY Chart
XLY data by YCharts

Looking at the relative strength of a basket of consumer discretionary stocks over a basket of consumer staples stocks is an important determinant of consumer behavior as discretionary spending predicts future economic growth.

Consumer spending accounts for up to 70% of economic activity, so essentially the more they spend the faster the U.S. economy grows. Similarly, discretionary spending is more elastic than spending in the consumer staples space. For example, a person may not need a new rake from Home Depot if money is tight, but will always need to get their medications at the local CVS.

Read More: MannKind Lands Afrezza Partner but at High Cost

Earlier this year, discretionary stocks took a massive nose-dive compared to consumer staples. Weak employment growth and severe winter weather in the first quarter deterred people from shopping and led investors to sell discretionary names across the board.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $124.25 0.00%
FB $81.66 0.00%
GOOG $542.56 0.00%
TSLA $187.59 0.00%
YHOO $44.13 0.00%


DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs