What The Consumption Drag Means For Investors (Part 6 of 6)
In addition, there is a third implication: continued weakness in consumer-related stocks, particularly discretionary companies. Despite what is shaping up to be a decent year for U.S. stocks overall, consumer discretionary companies could lag.
As such, I continue to advocate caution toward consumer-related segments of the market. You can read more about my sector outlooks in my latest Investment Directions monthly market commentary.
Market Realist – Consumer discretionary companies lag the broader markets.
The graph above compares the price performances of the consumer discretionary sector and the consumer staples sector for 2014. The consumer discretionary sector is tracked by the Consumer Discretionary SPDR ETF (XLY). The consumer staples sector is tracked by the Consumer Staples Select Sector SPDR ETF (XLP). They’ve returned 6.7% and 14.3%, respectively.
Consumption directly affects both of these sectors. However, the consumption discretionary sector is affected more because staples are usually necessities. As a result, consumer discretionary companies have lagged the consumer staples in 2014. Consumer discretionary companies have also lagged the S&P 500 (SPY)(IVV). So far, SPY returned 11.8% this year. You need to be wary of the consumption sectors—like retail (XRT). Revenues won’t pick up until spending increases in a meaningful manner.
Please read Market Realist’s series, 4 reasons why businesses could begin spending again soon, to learn why businesses could start investing soon.
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