XLY - XLY: Consumer Discretionary Rebound May Reverse As Retail Sales Crash
2024-02-19 02:13:55 ET
Summary
- The consumer discretionary sector has slowed post-COVID recovery as inflation has weighed on consumer spending growth.
- Elevated valuations and negative growth outlooks for top holdings in the Consumer Discretionary ETF raise concerns.
- Consumer spending is driven by borrowing rather than wages, which are arguably still not rising as fast as household living costs.
- Real retail sales have crashed despite skyrocketing credit card usage, indicating many households are pulling back on discretionary spending.
- With decent momentum and high individual investor cash reserves, XLY could continue to rise in the short term. However, its fundamentals appear bearish to me.
The consumer discretionary sector has had a slower post-COVID recovery than most other industries. More specifically, since inflation and interest rates spiked at the end of 2021, its performance has been comparatively lackluster, erasing all the significant gains made during the COVID consumer splurge era. Since 2022, the Consumer Discretionary ETF ( XLY ) has had somewhat steady underperformance compared to the S&P 500 ETF ( SPY ). That said, its 10-year total returns (including dividends) are nearly the same as the S&P 500s. See below: