There’s a Consumption Dichotomy Playing Out
The top-performing sector in the S&P 500 last week was consumer discretionary. In fact, the rally was so strong, it even overtook consumer staples with respect to year-to-date returns. It’s like a law of nature: When consumer discretionary outperforms consumer staples, it’s a risk-on signal. This is the market’s way of saying that consumers are willing and able to spend on discretionary items like dining, apparel, and traveling instead of just household necessities.
But here’s the catch – anyone that’s living in the real world knows that many Americans are living paycheck to paycheck. So, who’s exactly spending this money, and what does it mean for your portfolio?Here’s a hint: It’s the wealthy, the same group that drives fashion and retail trends.During economic downturns, the real wealthy don’t really stop spending. It’s just the truth. And as more wealth becomes concentrated amongst the upper classes, the more they’re likely to spend that money and drive consumption trends.Remember, consumption accounts for around 70% of the U.S. GDP. There’s a great bifurcation taking place in the retail space right now. It all has to do with cultural trends, and the companies that can’t keep up will inevitably fade into darkness.But you know two companies that likely aren’t going anywhere anytime soon? Tesla and Amazon.Not only do these two companies make up a significant portion of the Consumer Discretionary Select SPDR ETF (XLY), but those trading with me here at TheoTrade have been long AMZN since June 26, and TSLA since July 1. These stocks are doing exactly what I expected them to do. I’ll be sure to give you an update if that changes.More By This Author:This VIX Whale Trade Should Make You NervousThis Market Is A One-Stock PhenomMetals Rally – Pet Rocks Have Overtaken Digital Rocks
