A quick snapshot shows consumer staples (XLP - News) and consumer discretionary (XLY - News) are each ahead by over 20% year-to-date (YTD) and edging out the S&P 500's 17.30% gain. (See table below for full visual)
The mood of consumers is improving, according to the Conference Board Consumer Confidence Index. For May, the index jumped to 76.2 from 69.0 in April and is now at a five-year peak.
Rising home prices have also boosted consumer sentiment.
The S&P/Case-Shiller Home Price 20-City Composite Index increased by 10.9% in the one-year period ending March 2013. The national composite rose by 10.2% in the last four quarters and all 20 major cities posted positive year-over-year growth.
XLP owns defensive stocks like CVS Caremark, Procter & Gamble, and Kraft Foods. In contrast, XLY owns companies in the auto, hotel, restaurant, and retailing sector like Home Depot and Walt Disney.
Has the stock market become overheated?
Although household credit remains tight, borrowing money to buy stocks has jumped. For April 2013, NYSE margin debt topped $384.37 billion to beat a previous record of $381.37 in July 2007.
Margin interest rates are typically lower than credit cards and unsecured personal loans. Also, there's no set repayment schedule with a margin loan and the principal can be repaid at the borrower's convenience. However, a sharp correction in equity prices can cause borrowers to quickly magnify their losses.
For Q2 2013, earnings growth estimates have dropped from expectations of 4.4% at the beginning of April to 1.4% today.
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