David Fry on Seeking Alpha points out that… it’s pretty darn hard to cripple the consumer. Even though credit card debt rose by more than $13 billion in the month of June, the consuming public is gainfully employed. With strong employment comes a willingness to spend with plastic, cash or in some cases, one’s first born child.
Still, disappointing forecasts by Sears and Home Depot are leaving some to question the vitality of big time retailers. Others think that the summertime heat will eventually drain the consumer of his/her will to purchase small ticket or big ticket items.
A quick visual on consumer discretionary stock performance shows what the investor is up against. If consumers are still willing to spend, why haven’t companies like Sears, Home Depot and Kohl’s Corp performed better in 2007? (Each can be found in the SPDR Consumer Discretionary Fund XLY).
Some retailers that are tied to housing and/or home improvement may be dragging on the overall performance of consumer discretionary companies. The strength of Costco and Target have offset some of the weakness in companies like Home Depot to help propel the Merrill Lynch Retail HOLDRs (RTH) to slightly more impressive profits.
It’s hard to tell what’s next for the consumer. As long as employment remains strong, one would expect Americans to spend.
Yet the dog days of summer may be harsh on the Merrill Lynch Retail HOLDRs (RTH) and the SPDR Consumer Discretionary Fund (XLY); specifically, the sector seems to be riddled with more uncertainty than segments like the SPDR Energy Fund (XLE) or the broader investment markets a la the S&P 500’s SPDR (SPY).