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US consumer discretionary sector outperforms amid inflation slowdown

EditorNikhilesh Pawar
Published 2023-11-17, 12:54 p/m
© Reuters.
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WASHINGTON - The U.S. consumer discretionary sector is experiencing notable growth, with the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) showing a significant 5.5% increase over the past month. Year-to-date figures are even more impressive, with XLY's growth reaching 29%. This robust performance comes despite ongoing challenges in the economy, such as unemployment issues and pressures in the housing market.

In recent days, inflation has shown signs of slowing down, a trend underscored by October's Consumer Price Index (CPI), which remained unchanged from the previous month and recorded a modest 3.2% increase year-on-year, falling below market expectations. This deceleration in core inflation marks the slowest pace in two years, suggesting that the Federal Reserve may adopt a less aggressive stance on interest rates at their December meeting.

As a result of these inflationary trends, Treasury yields have seen a decrease, with benchmarks dropping to 4.45% and two-year notes to 4.83% on Wednesday.

Heading into the holiday season, there is further optimism as the National Retail Federation (NRF) anticipates holiday spending to reach between $957.3 billion and $966.6 billion. This projection represents an increase of 3-4%, potentially buoyed by recent oil price declines of 5% on Thursday, which could free up additional funds for consumer discretionary spending.

The positive outlook is reinforced by an Earnings Trends report dated November 15, which indicates that earnings growth for the consumer discretionary sector is expected to be strong. The report forecasts a 26.3% earnings growth for Q3, with subsequent quarters also showing promising projections.

Amidst these favorable conditions, investment opportunities are emerging in top-ranked ETFs such as XLY and Vanguard Consumer Discretionary ETF (NYSEARCA: VCR). Both funds are benefiting from the current economic climate, making them attractive options for investors looking to capitalize on the sector's positive momentum.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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