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How Consumer ETFs Crushed the S&P 500 Bull Market Run
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The S&P 500’s bull market has just turned eight. On this very day, eight years ago, stocks bottomed out only to log an amazing recovery from the deepest recession since the Great Depression.
The collapse of Lehman Brothers in September 2008 wreaked havoc on the Wall Street. And on March 9, 2009, the broader S&P 500 was below 700 for the first time in 13 years. But all this is history today as the S&P 500 is now trading at $2,362.98 (as of March 8, 2017). This marks the second-longest bullish phase in the history of the U.S. equity market.
The total market capitalization of the S&P 500 is now about $21 trillion compared with $5.89 trillion eight years ago. The Fed’s quantitative easing and rock-bottom interest rate policy in order to give the ailing economy a solid push pulled up the market from such lows.
While several sectors performed overwhelmingly, consumer discretionary emerged as one of the best-performing ones. If we look at the ETF world, we would see that S&P 500 based fund SPDR S&P 500 ETF (SPY - Free Report) returned about 310% while Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) advanced about 510.3%. Forget consumer cyclicals, even consumer defensive ETF Guggenheim S&P 500 Equal Weight Consumer Staples ETF too beat SPY by offering about 333.4% gains (read: Play Positive Surprise with These Sector ETFs).
What Made Consumer Discretionary a Star Performer?
Job Growth
First of all, the Fed’s policy easing did a lot in driving the consumer discretionary sector. It helped in job creation and pushed up inflation. The unemployment rate at the start of the bull market was 8.3% while it almost halved in January 2017 to 4.8%. Wage growth has also picked up in recent times, resulting in greater affordability.
Rising Consumer Confidence
No doubt there have been bumps on the way. Every bull market has them. But overall, a notable and gradual improvement in the labor market made U.S. consumers confident about the economy. As per the Conference Board, consumer confidence inched up to 114.8 in February from 111.6 in January, marking the highest level since July 2001.
GDP Growth
As per Reuters, the final GDP reading in March 2009 came up with a year-on-year contraction of 5.7%. On the other hand, GDP grew 1.90% year over year in Q4 of 2016 (which was in fact downbeat considering 3.5% economic growth in Q3), marking a sharp rebound.
One should note that even in the listless GDP growth picture of Q4, consumer spending rose at a faster-than-anticipated rate of 3%. Household spending makes up about 70% of U.S. economic activity. Thus, when the economy improves, a big share comes from American spending.
Wealth Effect
Thanks to the steady ascent in the broader market, a wealth effect was realized. As per investopedia, “The wealth effect helps to power economies during bull markets. Big gains in people's portfolios can make them feel more secure about their wealth and their spending.”
And in a growing economy, most sectors surge from a wealth effect, with a few of the more cyclical corners making the most of this run-up. Among the cyclical ones, as per Fidelity, sectors like consumer discretionary tend to do better in the early phase of an economic recovery.
Recent Rout in Oil Prices
If this was not enough, things turned rosier from the second half of 2014 on oil price decline. Lower gasoline prices bring good news for retailers as consumers get to have fatter wallets and more money for discretionary spending (read: 3 Sectors ETFs That Should Thrive On Low Oil Prices).
Trump Trade
The final factor was the Trump bump. His promises of solid fiscal reflation, deregulation, tax cuts and further job creation in the economy gave nothing but an impetus to consumer spending. The broader market has hit several highs since the November election helped by optimism surrounding Trump trade (read: High Beta and Momentum ETFs to Buy on High Hopes).
Consumer ETF Winners
Below we highlight several consumer discretionary ETFs that have breezed past the S&P 500 in this bull market phase.
Image: Bigstock
How Consumer ETFs Crushed the S&P 500 Bull Market Run
The S&P 500’s bull market has just turned eight. On this very day, eight years ago, stocks bottomed out only to log an amazing recovery from the deepest recession since the Great Depression.
The collapse of Lehman Brothers in September 2008 wreaked havoc on the Wall Street. And on March 9, 2009, the broader S&P 500 was below 700 for the first time in 13 years. But all this is history today as the S&P 500 is now trading at $2,362.98 (as of March 8, 2017). This marks the second-longest bullish phase in the history of the U.S. equity market.
The total market capitalization of the S&P 500 is now about $21 trillion compared with $5.89 trillion eight years ago. The Fed’s quantitative easing and rock-bottom interest rate policy in order to give the ailing economy a solid push pulled up the market from such lows.
While several sectors performed overwhelmingly, consumer discretionary emerged as one of the best-performing ones. If we look at the ETF world, we would see that S&P 500 based fund SPDR S&P 500 ETF (SPY - Free Report) returned about 310% while Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) advanced about 510.3%. Forget consumer cyclicals, even consumer defensive ETF Guggenheim S&P 500 Equal Weight Consumer Staples ETF too beat SPY by offering about 333.4% gains (read: Play Positive Surprise with These Sector ETFs).
What Made Consumer Discretionary a Star Performer?
Job Growth
First of all, the Fed’s policy easing did a lot in driving the consumer discretionary sector. It helped in job creation and pushed up inflation. The unemployment rate at the start of the bull market was 8.3% while it almost halved in January 2017 to 4.8%. Wage growth has also picked up in recent times, resulting in greater affordability.
Rising Consumer Confidence
No doubt there have been bumps on the way. Every bull market has them. But overall, a notable and gradual improvement in the labor market made U.S. consumers confident about the economy. As per the Conference Board, consumer confidence inched up to 114.8 in February from 111.6 in January, marking the highest level since July 2001.
GDP Growth
As per Reuters, the final GDP reading in March 2009 came up with a year-on-year contraction of 5.7%. On the other hand, GDP grew 1.90% year over year in Q4 of 2016 (which was in fact downbeat considering 3.5% economic growth in Q3), marking a sharp rebound.
One should note that even in the listless GDP growth picture of Q4, consumer spending rose at a faster-than-anticipated rate of 3%. Household spending makes up about 70% of U.S. economic activity. Thus, when the economy improves, a big share comes from American spending.
Wealth Effect
Thanks to the steady ascent in the broader market, a wealth effect was realized. As per investopedia, “The wealth effect helps to power economies during bull markets. Big gains in people's portfolios can make them feel more secure about their wealth and their spending.”
And in a growing economy, most sectors surge from a wealth effect, with a few of the more cyclical corners making the most of this run-up. Among the cyclical ones, as per Fidelity, sectors like consumer discretionary tend to do better in the early phase of an economic recovery.
Recent Rout in Oil Prices
If this was not enough, things turned rosier from the second half of 2014 on oil price decline. Lower gasoline prices bring good news for retailers as consumers get to have fatter wallets and more money for discretionary spending (read: 3 Sectors ETFs That Should Thrive On Low Oil Prices).
Trump Trade
The final factor was the Trump bump. His promises of solid fiscal reflation, deregulation, tax cuts and further job creation in the economy gave nothing but an impetus to consumer spending. The broader market has hit several highs since the November election helped by optimism surrounding Trump trade (read: High Beta and Momentum ETFs to Buy on High Hopes).
Consumer ETF Winners
Below we highlight several consumer discretionary ETFs that have breezed past the S&P 500 in this bull market phase.
Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF – Up 529.9%
Vanguard Consumer Discretionary ETF (VCR - Free Report) – Up 512.3%
PowerShares Dynamic Leisure & Entmnt ETF (PEJ - Free Report) – Up 479.2%
First Trust Cnsmr Discret AlphaDEX ETF (FXD - Free Report) – Up 448.6%
iShares US Consumer Services (IYC - Free Report) – Up 421.5%
PowerShares Dynamic Media ETF – Up 416%
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