Investors are turning against the consumer discretionary exchange traded funds. Still, the excessively bearish outlook can be an opportunity to step in as the sector bounces around its short-term trend line.
In a mid-August report, Bank of America outlined a bearish outlook on consumer discretionary stocks. BofA believes the sector is “the most overweight sector relative to the S&P 500 by large cap active managers.” BofA also points to “elevated downside risk for the sector’s earnings,” as well as rising interest rates that might push consumers “toward saving over spending,” reports Victor Reklaitis for MarketWatch. [Attention Shoppers: Discretionary ETFs Could See Falling Prices]
However, Schaeffer’s Investment Research suggests that the negative sentiment is overdone. [Ahead of Fed Consider…Discretionary ETFs?]
“Among specific equities we’re following are Orbitz Worldwide (OWW), TripAdvisor (TRIP), Live Nation Entertainment (LYV), and Lions Gate Entertainment (LGF),” Schaeffer’s said. “Each of these names has outperformed the broader SPX throughout the past three months, yet it would take at least a week to cover the shorted shares of each stock. An unwinding of this pessimism in the face of the sector’s continued momentum could translate into a contrarian boon down the road.”
The Consumer Discretionary Select Sector SPDR (XLY) has gained 23.9% year-to-date but dipped below its 50-day moving average on escalating talks of potential action against Syria Tuesday. Looking at XLY holdings, TRIP is 0.4%,
The PowerShares Dynamic Leisure & Entertainment ETF (PEJ) has gained 33.1% year-to-date. Looking at PEJ holdings, OWW is 3.3% and LGF is 3.1%.
Consumer Discretionary Select Sector SPDR
For more information on the consumer discretionary sector, visit our consumer discretionary category.
Max Chen contributed to this article.
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.
- Bank of America