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The economy is buzzing and consumers are giddy about it. According to a popular index from the University of Michigan, consumers have seldom been as optimistic as they are currently.
The University of Michigan Consumer Sentiment Survey reached 101.4 in September, the second-highest level of the year and the second-highest level since 2004.
With consumers’ spirits so high, many stocks of consumer-related companies are soaring higher—but not all of them. The consumer discretionary sector is one of the top-performing stock market sectors of the year.
It’s up a cool 17.7% year-to-date, as measured by the $15.9 billion Consumer Discretionary Select Sector SPDR Fund (XLY).
MSCI defines the consumer discretionary sector as including consumer businesses that are “most sensitive to economic cycles,” including automotive, household durable goods, apparel, restaurants, media production and retailing.
With the economy growing briskly, these cyclical companies have profited handsomely. But not all consumer stocks are doing so well.
Just as consumer discretionary stocks have surged higher, another consumer sector—consumer staples—has been left in the dust. The sector, as measured by the $9.5 billion Consumer Staples Select Sector SPDR Fund (XLP), is down 2.1% year-to-date, making it one of the worst-performing groups of 2018.
The consumer staples sector includes companies that are “less sensitive” to economic cycles, according to MSCI, including manufacturers and distributors of foods, beverages, tobacco, nondurable household goods and personal products.
Economic Impact
The nearly 20% spread between the returns of the two consumer sectors is certainly steep, but not necessarily surprising, say analysts.
“Consumer staples are often viewed as being defensive and interest rate sensitive. Defensive stocks lag when the economy is humming along,” explained Brian Jacobsen, senior investment strategist for the Wells Fargo Asset Management Multi-Assets Solutions team.
On the other hand, “consumer discretionary is more cyclical, so strong economic numbers have helped the sector,” he said. “This is a reversal from last year, where any retailer that wasn’t Amazon was under pressure. Since the death of retail has been greatly exaggerated, we’ve had a bit of a rebound.”
YTD Returns For XLY, XLP
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