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Consumer ETFs Outperforming as Spending Closely Linked to Income


ETFs tracking the consumer staples and discretionary sectors are outperforming the S&P 500 so far this year with consumption showing a close relationship with increases in wages.

Consumer Discretionary Select Sector SPDR (XLY) and Consumer Staples Select Sector SPDR (XLP) are up 25.7% and 20%, respectively, according to Morningstar. The S&P 500 has gained about 19% year to date. [Consumer ETFs: Staples vs. Discretionary]

In particular, consumer discretionary and retail ETFs have been strong performers since the stock market bottomed in March 2009. [Consumer Discretionary ETFs Still Crushing the S&P 500]

Consumer ETFs have done well even though Americans are deleveraging and hesitant to spend on credit. [Lackluster Retail Sales May Cool Sector ETFs]

“Consumers in the U.S. are spending more closely in line with their incomes than in any expansion in the past 48 years, learning the lesson of the last recession that living beyond your means often ends badly,” Bloomberg reports.

The correlation between wages and purchases in the economic rebound that started in 2009 is 94%, according to the article.

“The consumer has really cleaned up their balance sheet — they’re growing consumption based on the rate of growth of their earnings, which at the end of the day builds a more solid foundation,” said Jacob Oubina, a senior economist at RBC, in the report. “We’d just like to see a little bit more credit usage, because it’s been non-existent.”

Yet easier credit alone won’t be enough to drive economic growth over 3%; it will also require bigger gains in wages and an improving jobs market, he added.

Consumer Discretionary Select Sector SPDR

The opinions and forecasts expressed herein are solely those of John Spence, 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.