Don Smith of points out the "high demand" of the consumer discretionary exchange-traded fund (XLY) since January, 2006. What the analysis doesn’t show, however, is that few segments of the economy are more directly affected by a slowdown than the discretionary purchases of the consumer.

Clearly, XLY has prospered throughout the refinancing boom due to heavy allocations/weightings to Home Depot and Lowes. It has also benefited from our seemingly unquenchable thirst for "stuff" at companies like Target and online flea markets like EBay.

As much as I may favor the prospect of an economic "soft landing," it is difficult to ignore the probability that consumers will have less to spend in the coming months. Lenders are tightening their belts, making it difficult for consumers to spend home equity dollars. The Fed is not yet ready to lower interest rates, making it less likely to borrow as much through other sources. And even if one believed that consumers would continue spending at the brisk pace they have been spending over the last 3 years, would Home Depot and Lowes be the likely beneficiary of these dollars?

May I suggest that, while the broader stock market should continue an upward trend, particularly in a "slower-yet-steady" economic environment, other sectors may prove more fruitful. Materials (XLB) are in demand, locally and globally. Healthcare (XLV) is less affected by a slower economy, and the same can be said for the defensive sector utilities (XLU). Even beaten down segments such as technology (XLK) deserve a second look due to the need for business spending. (With 180,000 new jobs in March and a mere 4.4% national unemployment, companies haven’t shied away from reinvesting in themselves!)

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.

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