Tuesday’s ETF To Watch: Consumer Discretionary SPDR (XLY)

by on June 29, 2010 | ETFs Mentioned:

Equity markets have been very choppy as of late, as traders remain unsure of the market’s direction going into the summer. With details of the financial reform, Gulf oil spill and the recent G-20 summit swirling, uncertainty is running high as the curtain falls on the second quarter. However, recent news on the consumer front may suggest that things have bottomed out. On Monday, personal income and outlays for May were released and the numbers were encouraging to many analysts. Personal incomes rose 0.4% month over month, while consumer spending rose 0.2% using the same measure. This suggests that not only did incomes grow (which will give consumers more buying power), but that consumers are not socking away money and are spending a good percentage of their income. This trend should be encouraging to many discretionary firms, although many ETFs tracking the sector failed to react positively to the news. There is more data on the table for today’s trading day as well, which should help to confirm or rebuke the trend [also read Will Frugality Weigh On Consumer ETFs?].

Investors will focus in on three key data releases in order to give the market, and specifically consumer ETFs, direction today. First up is the ICSC-Goldman Sachs same store sales figures at 7:45 AM. This measure uses sales figures at major retail chains engaged in the general merchandise portion of retail sales, which accounts for roughly 10% of total retail sales. Investors will then focus their attention on the all important S&P Case-Shiller Home Price Index, which tracks the changes in home prices month-to-month in 20 of the largest metro areas in the country. Rising home prices generally increase consumers’ ability to spend, while falling prices dampen consumer confidence. To cap off the data filled morning consumer confidence levels will be released. These figures have been surging higher in recent months, up to 63.3 at the last reading from 57.9 in April.

With this slew of data releases on the docket, Tuesday’s ETF to watch is the Consumer Discretionary Select Sector SPDR (XLY), the largest ETF in the Consumer Discretionary Equities ETFdb Category. XLY offers a diversified mix of companies that are likely to be heavily impacted by changes in consumer sentiment, since many of the products that these companies sell are not necessities and are in higher demand as confidence rises. XLY’s top holdings include McDonald’s (6.7%), Walt Disney (6.3%), and Home Depot (5.3%) as well as many other top name brands [see more on XLY's holdings here]. The fund has produced a gain of more than 30% over the last year, but has struggled in recent weeks. XLY will be looking for positive news from today’s data releases in order to give the fund direction into July [also see Are Toilet Paper Sales Signaling A Strong Recovery?].

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Disclosure: No positions at time of writing.