NEW YORK (TheStreet) -- Cyclical stocks linked to consumer spending are leading the market higher, which bodes well for further gains in U.S. equities.

Consumer Discretionary Select Sector SPDR (XLY - Get Report) and SPDR S&P Retail (XRT - Get Report) have hit record highs this week on positive economic data and improved corporate outlooks over the next year.

The consumer-discretionary exchange-traded fund is most heavily weighted by Amazon (AMZN - Get Report) , Comcast (CMCSA - Get Report) , Disney (DIS - Get Report) . Home Depot (HD - Get Report) and McDonald's (MCD - Get Report)

The the retail ETF, which is equal weighted, contains CarMax (KMX - Get Report) , Family Dollar Stores (FDO) , GameStop (GME - Get Report) , Lands' End (LE - Get Report) and PetSmart (PETM) .

The chart below shows that both ETFs have outperformed SPDR S&P 500 (SPY - Get Report) during the past month, signaling that economically sensitive sectors underlie the gains in U.S. equities.

 XLY Chart
XLY data by YCharts


Consumer stocks were aided this week by a report that the U.S. consumer-confidence figure improved unexpectedly, reaching its highest level since October 2007. The Conference Board said on Tuesday that its index of consumer confidence rose to 92.4 in August from a reading of 90.3 in July.

The chart below highlights the recent improvement in the labor market, as well as the gradual decline of the 10-year interest rate that has held up business activity.

The chart shows that from 2000 to present day, the 10-year Treasury yield has been on a steady downtrend. That has helped the economy recover from multiple recessions, because it has enabled cheap financing and credit.

The chart also highlights the steady swing of the labor market since the turn of the millennium. Employment declined following the stock market crash in 2000 and again fell during the financial crisis, but during the past two years, job growth has accelerated.

Low interest rates and an improving labor market have helped consumer confidence and consumer spending rebound, and businesses see stronger spending coming over the next year.

Data provided by The Federal Reserve


Home Depot and Disney have vastly outperformed broader equity indexes recently as they project strong revenue in coming quarters.

Home Depot's shares have risen almost 15% in August as the home-improvement company said it expects same-store sales to increase faster during the second half of the year as customers renovate homes with big-ticket purchases, as the U.S. housing market continues to recover.

Similarly, Disney's theme parks, studio entertainment, and sports broadcasting segments all topped expectations in the company's fiscal third quarter, which ended in June.

The strength of the two companies is just a sample of the broader trend showing the return of consumer spending. As the economy continues to heal and consumers increase their spending, companies tied to consumer-discretionary spending should profit.

Analysts may question the strength of the bull market based on low volumes, but the real indicator lies in the companies driving the market higher.

When those companies are tied to consumer spending, there is no telling how long the bull market will remain in place.

HD Chart
HD data by YCharts


At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.