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Consumer Discretionary ETFs Are Struggling To Keep Up

05 January 2011 at 2:38 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Wednesday’s economic data offered more than a glimmer of hope for the recession-weary.¬†According to ADP’s monthly survey, private payrolls increased by a staggering 300,000 new jobs. The number¬†tripled¬†economist expectations¬†and it represented the largest single-month¬†booster shot¬†since the survey began back in¬†2000.

Of course,¬†the ADP survey rarely comes close to emulating¬†the U.S. government’s¬†official stats. In November, ADP reported 92,000 new jobs whereas the U.S. government logged just¬†39,000. What’s more,¬†a single month’s¬†data point rarely reflects the broader trend.¬†

There’s little doubt, however, that job growth has accelerated. And while some of the credit may go to a willingness of corporations to open their wallets, a large portion of the credit must also go to the outcome of the congressional elections in early November. Not only did the Republican victories solidify the likelihood of tax cut extensions, but they helped persuade business leaders that a new era of pro-business sentiment was on the way.

Think this isn’t the case? Investors do.¬†The current perception that¬†government gridlock will end¬†big government legislation (e.g.,¬†FINREG financial regulation) as well as¬†White House energy intervention (e.g.,¬†drilling moratorium)¬†lifted¬†SPDR Select Energy (XLE) as well as SPDR Select Financials (XLF)¬†out of the doghouse. In fact, both areas finished in the top half of 1-month sector performers.

Sector ETFs: Rolling 1 Month Period (12/6/2010-1/5/2011)
           
          Approx %
           
Financials Select Sector SPDR (XLF)   9.0%
iShares Telecom (IYZ)     6.7%
Materials Select Sector SPDR (XLB)   4.9%
Industrials Select Sector SPDR (XLI)   4.2%
Energy Select Sector SPDR (XLE)   4.1%
Technology Select Sector SPDR (XLK)   4.0%
Health Care Select Sector SPDR (XLV)   4.0%
Consumer Staples Select SPDR (XLP)   2.8%
Utilities Select Sector SPDR (XLU)   2.0%
Consumer Discretion Select SPDR (XLY)   1.9%

 

Actually, Sector ETF performance¬†has approximated the results that we’ve come to expect¬†in a broad-based, “risk-is-hip” rally…¬† with one noteworthy exception. Consumer stocks have been underachieving.

Why would consumer purchasing come into question when hiring is apparently accelerating? Indeed, it stands to reason that consumer spending would pick up when jobs are just around the corner.

Do investors doubt the post-holiday spending power of consumers? Is home price depreciation still weighing on the minds of investors and consumers alike? Or is this merely rotation from former standouts such as Consumer Discretionary (XLY) into previously unloved Health Care (XLV) and/or Financials (XLF)?

Perhaps there’s more at “work” here… much more than the possibility of a country’s citizens¬†getting back into the workforce. The country will need to hire 2,000,000 or more people before year-end… just to put the smallest dent in current unemployment levels. This may be the reality that is causing SPDR Select Consumer Discretionary (XLY)¬†and iShares DJ Consumer Services (IYC) to lag.

XLY and the S&P 500

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Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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