With April’s sell-off in the rearview mirror, optimism is rebuilding among business leaders and consumers alike. This could set up bullish vibes for consumer discretionary stocks or one leveraged ETF: the Direxion Daily Consumer Discretionary Bull 3X ETF (WANT ).
With the S&P 500 back in positive territory, recession horns that blared in April are starting to taper off. In turn, CEOs are feeling much better about the economy. Per a CNBC report, less than 30% of CEOs are predicting a mild or severe recession will occur over the next six months. This was data extrapolated from a Chief Executive Group’s survey of more than 270 business leaders. That number is down 16% versus last month, and less than half of the 62% in April when the tariff tantrum sell-off rattled markets.
Trade news will continue to drive markets and more positive reports coming from U.S.-China negotiations are also spilling over into consumer sentiment. As mentioned by Yahoo Finance, the the Consumer Confidence Index reached a level of 98 last month, which was a jump of 12.3 percentage points from April. Supporting that consumer positivism is data from the University of Michigan’s Survey of Consumers, which showed no change in sentiment from April to May, but managed to avoid a decrease once more positive trade news hit the market.
“Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods,” the report said.
Now, the market is returning its focus on what the Fed will do with interest rates.
Lower Inflation Could Lift WANT
A data-dependent Fed could be looking at the latest inflation numbers while mulling a rate cut. May’s inflation number came in less than anticipated, which could fan the rate cut flames.
“Inflation in May was lower than anticipated, suggesting the tariffs aren’t having a large immediate impact because companies have been using existing inventories or slowly adjusting prices due to uncertain demand,” said Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management.
“As we wait for the 90-day tariff pause to pass, the market will be caught between inflation and job prints. If inflation stays under control or the job market weakens, the Federal Reserve will likely consider cutting interest rates down the road,” Wilson-Elizondo added further.
Rate cuts could bring up consumer discretionary spending. Lower rates could translate to more consumer financing for items they’ve been holding off on until the Fed eased monetary policy. In turn, this could lift WANT. The fund tracks the Consumer Discretionary Select Sector Index (IXYTR). That index includes companies in the consumer discretionary sector, such as media; retail (specialty, multiline, internet & catalog); hotels, restaurants & leisure; textiles, apparel & luxury goods; household durables; automobiles; automobile components; distributors; leisure equipment & products; and diversified consumer services.
Hence, the top three holdings in the fund include online retailer Amazon, Tesla, and Home Depot. The fund’s 3x exposure gives traders the the ability to maximize profit potential, but only seasoned market players should use these leveraged ETF products.
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