Consumer Discretionary Sector Outperforming the Broad Market

Yes, that’s right, the Consumer Discretionary Sector continues to outperform the rest of the market. I know I know, retail sales were flat in August, the unemployment rate is still above 9%, Euro Zone this, Greece that, debt levels, housing…blah blah blah.

You cannot argue with results. Period. The Wall Street Journal put out a nice piece this week about how the Consumer Discretionary Stocks are defying logic:

“In the face of weak employment data and even worse consumer sentiment, the Consumer Discretionary Select Sector SPDR Fund, the popular exchange-traded fund, is showing historic outperformance versus the Standard & Poor’s 500 index.

The fund is still down for 2011, and it’s come off midyear highs on an absolute basis, reflecting stock-market weakness and uncertainty over the U.S. economy. But if an investor plots its performance versus the broader market, the fund has proven a recent winner.”

It certainly has. Take a look at the performance of this fund ($XLY) vs the S&P500 ($SPY):

A few of the names that stand out in this particular group are McDonald’s ($MCD) and ($AMZN). According to State Street, these are the two largest components of the fund representing close to 15% of the entire ETF. Check out this performance on an absolute basis – both of these companies are sitting at or near all-time highs:

Ryan Detrick, Senior Technical Strategist at Schaeffer’s Investment Research said that,

“It all comes down to expectations….This group has quietly held up better, [even though] all we hear about are the various concerns about the consumer. We think it’s very encouraging that that’s been happening.…The overall economy is slowing, but it’s still growing, slowly….It’s one of those examples where [investor sentiment] is so very, very low.”

Everything is relative here. I thought the WSJ Blog did a nice job pointing out the out-performance of this sector in the face of a potentially weakening economy. Remember, this is the “Consumer Discretionary Fund, by definition where Consumers “Spend” their Discretionary Income…..something to think about…..something else to watch and/or trade….



Consumer-Discretionary Stocks Defy Consumer, Discretion, Stocks (WSJ)

Consumer Discretionary Select Sector SPDR Fund (XLY) Fact Sheet (StateStreet)