This Day On The Street
Continue to site
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.

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.

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

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.

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
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs