Friday’s ETF To Watch: Consumer Discretionary Select Sector SPDR (XLY)

by on April 1, 2011 | ETFs Mentioned:

Although the stock market continues to rise modestly in light of bad geopolitical news and high commodity prices, the good news in equities has failed to trickle into real job creation as unemployment remains stubbornly high across much of the nation. While jobs remain hard to come by, some recent data points could help to shed some light on the current situation and offer clues as to whether high levels of job creation will be upon us in the near future. Earlier this week, investors cheered the results of a lukewarm ADP report which showed that 200,000 jobs were created in the private sector as some pointed to the high number as reason for optimism despite the figure coming below analyst estimates. However, this news was soon balanced out by the initial jobless claims report from yesterday. In this report which shows investors how many people file for unemployment benefits for the first time during the week, new claims came in higher than estimates at 388,000 or roughly 8,000 greater than what analysts were expecting.

Thanks to these mediocre reports, investors are likely to put a premium on the big release due out later today in the sector; the change in nonfarm payrolls. This data point, which accounts for roughly 80% of all workers, is often regarded as the single most important piece of data contained in the employment report which many see as the best overview of the overall economy. Analysts are currently expecting payrolls to increase by roughly 188,000 for the month of March, which is roughly in-line with growth from February in which the economy generated 192,000 jobs [see all the ETFs in the Consumer Discretionary ETFdb Category].

Due to the reports from earlier in the week and the crucial nature of today’s release, investors should look for the Consumer Discretionary Select Sector SPDR (XLY) to be in focus throughout the day’s trading session. XLY tracks the Consumer Discretionary Select Sector Index which includes companies from the following industries: retail (specialty, multi-line, internet and catalog); media; hotels, restaurants & leisure; household durables; textiles, apparel & luxury goods; automobiles, auto components and distributors; leisure equipment & products; and diversified consumer services. Thanks to this diversified approach, the fund represents a nice cross-section of the American consumer and looks to be one of the most impacted funds by today’s important news. If the data release shows that job creation is improving and that employers are finally beginning to hire, XLY could surge higher on the day. If, however, employers remain skeptical of the recovery– which is entirely possible given the surging price of oil– and still refrain from hiring, it could push XLY lower during Friday’s session and give the fund a gloomy start to the month of April [see holdings of XLY here].

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Disclosure: No positions at time of writing.