Although the ongoing market rally has seen a rotating assortment of threats and headwinds, the one constant that has pushed stocks higher is the resilience of the U.S. consumer. Monthly consumer expenditure reports from the Bureau of Economic Analysis consistently show annual spending growth between 3.5% and 5% over the previous year, historically solid results.
While this has certainly helped the broad market reach new highs, traders have seemingly focused their attention specifically on the American consumer’s loose pocketbook—some of the top-performing leveraged ETFs of the past year are consumer funds.
And there may be more growth ahead in the consumer sectors as retail and staples companies like Walmart Inc. /zigman2/quotes/207374728/lastsale WMT +0.46% PepsiCo, Inc. /zigman2/quotes/208744353/lastsale PEP -1.65% and Nike, Inc. /zigman2/quotes/203439053/lastsale NKE -4.24% gear up to report their fourth-quarter earnings in the coming weeks.
Up roughly 60% over the past year, the Direxion Daily Consumer Staples Bull 3X Shares /zigman2/quotes/204911371/lastsale NEED -5.46% saw a steady climb through much of 2019 that helped it end the year above comparable ETFs in the healthcare, utilities and real estate sectors.
That trend has remained steady in the initial weeks of 2020, with the NEED seeing a boost thanks to the strong January performance among key components like The Coca-Cola Company /zigman2/quotes/209159848/lastsale KO -4.81% and Mondelez International, Inc. /zigman2/quotes/201769764/lastsale MDLZ -2.80% . And with more earnings inbound from the likes of Costco Wholesale Corporation /zigman2/quotes/201191698/lastsale COST +0.58% and Pepsi in the coming weeks, NEED may see additional momentum if these reports match the results shared among their peers.
Since the economic environment has managed to push the consumer staples sector higher, it should come as little surprise that consumer discretionary has shared a similar (though somewhat more volatile) trajectory.
This has put the Direxion Daily Consumer Discretionary Bull & Bear 3X Shares /zigman2/quotes/204812814/lastsale WANT -12.80% is up about 65% over the previous 12 months, helped in no small part by the strength in market behemoths like Starbucks Corporation /zigman2/quotes/207508890/lastsale SBUX -4.75% , McDonald's Corporation /zigman2/quotes/203508018/lastsale MCD -4.34% and Amazon.com, Inc. /zigman2/quotes/210331248/lastsale AMZN -2.16% .
Upcoming earnings from the likes of The TJX Companies, Inc. /zigman2/quotes/203136811/lastsale TJX -6.67% , Target Corporation /zigman2/quotes/207799045/lastsale TGT +2.47% and Nike could place added momentum behind the sector since each company is coming off strong earnings beats from the previous quarter.
Of course, given the strength among the consumer staples and the fact that volatility has hampered growth among discretionary names, traders interested in the sector may want to hedge their bets. While the consumer might be driving the rally, there’s no telling when outside forces might put the bears behind the wheel.
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