Consumer Discretionary stocks have been beating the S&P 500 so consistently for so long now, that it’s almost difficult to remember a time when the sector had a sustained period of under performance. Obviously that won’t last forever though; at some point in the future there will be periods in which Consumer Discretionary stocks lag the broader market.
Looking at the history of the $XLY, it would appear that under performance in consumer discretionary could be a leading indicator for recession. $XLY under performed the $SPX in 1999-2000 and again throughout 2007. With this in mind, one could look at the current continued strength of $XLY as a sign that recession is still far off. On the other hand, if the sector starts to lag, it could be a red flag.
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