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Summary

  • The Consumer Staples ETF was the No. 6 performer ranked by returns among the nine Select Sector SPDRs during the first half of 2014.
  • Both the Consumer Staples and Consumer Discretionary SPDR ETFs underperformed their parent proxy SPDR S&P 500 ETF over the same period.
  • The confluence of the consumer funds' poor performance hints at issues for the economy as the U.S. cycles to tightening from loosening monetary policies.

The Consumer Staples exchange-traded fund (NYSEARCA:XLP), in the first half of this year, ranked No. 6 by returns among the Select Sector SPDRs that cut the S&P 500 into nine sections. On an adjusted daily share price basis, XLP grew to $44.62 from $42.47, an increase of $2.15, or 5.06 percent. (It closed at $45.07 Tuesday.)

XLP, in the first half, thus underperformed its parent proxy, the SPDR S&P 500 ETF (NYSEARCA:SPY), which grew 6.95 percent. It outperformed only its siblings, the Financial ETF (NYSEARCA:XLF), Industrial ETF (NYSEARCA:XLI) and Consumer Discretionary ETF (NYSEARCA:XLY), which rose 4.84 percent, 4.36 percent and 0.50 percent, respectively.

Figure 1: Households And Nonprofit Organizations, Net Worth

(click to enlarge)

Source: Federal Reserve Bank of St. Louis FRED

The total assets minus the total liabilities of U.S. households and nonprofit organizations advanced to an all-time high of $81.76 trillion in the first quarter of 2014 from a Great Recession low of $55.59 trillion in Q1 of 2009, a five-year gain of $26.18 trillion, or 47.10 percent, according to FRED, the Federal Reserve Bank of St. Louis' helpful know-it-all (Figure 1).

Based on my interpretation of the Fed's Z.1 Financial Accounts of the United States release of June 5, a great deal of this increase in the net worth of U.S. households and nonprofit organizations appears attributable to the movement of prices in a number of financial asset classes, including equities in multiple forms (e.g., individual issues, mutual fund shares).

Concerning this interpretation, I note SPY on an adjusted monthly share price basis rose to $186.12 in March 2014 from $71.45 in March 2009, a five-year gain of $114.67, or 160.49 percent. Also concerning this interpretation, I point out SPY on the same basis fell to $71.45 in March 2009 from $134.01 in October 2007, a 17-month loss of -$62.56, or 46.68 percent.

As I consider the current condition of consumers in those U.S. households, I bear in mind this brief history of stocks: Mr. Market giveth, and Mr. Market taketh away.

Figure 2: Households And Nonprofit Organizations, Total Liabilities

(click to enlarge)

Source: Federal Reserve Bank of St. Louis FRED

FRED paints a pretty picture of the status of U.S. households and nonprofit organizations, not only in terms of net worth but also in terms of total liabilities (Figure 2). These liabilities increased to $13.79 trillion in Q1 of 2014 from $13.54 trillion in Q3 of 2012, a six-quarter rise of $240.69 billion, or 1.78 percent. However, they are still well below their record high of $14.58 trillion in Q3 of 2008.

Based on my interpretation of the Fed's Z.1 Financial Accounts of the United States release of last month, all of this decrease in the total liabilities of U.S. households and nonprofit organizations seems attributable to home mortgages, whose aggregated debt value dipped to $9.39 trillion in 2013 from $10.58 trillion in 2008, a five-year drop of -$1.19 trillion, or -11.28 percent.

Figure 3: Total Consumer Credit Owned And Securitized, Outstanding

(click to enlarge)

Source: Federal Reserve Bank of St. Louis FRED

If the data previously presented can be parsed to mean American consumers' net worth has been increasing and their total liabilities have been decreasing of late, then why has the U.S. outstanding total consumer credit owned and securitized been parabolically rising since its most recent significant nadir in July 2010 (Figure 3)?

I argue a comparative few consumers are boosting their credit card spending because of confidence in the future, and a comparative many of them are doing the same due to necessity in the present. The U.S. Bureau of Labor Statistics' U-6 unemployment rate of 12.1 percent last month has implications for both consumers and consumer-related securities in an environment where the Fed is on a path not to looser but to tighter monetary policies.

Figure 4: XLP No. 6 Among Select Sector SPDR ETFs This Year

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted daily share price data at Yahoo Finance.

Neither XLP nor XLY appears positioned to behave well on an absolute basis at this point, given the above-referenced challenges to consumers. These challenges are especially important because personal consumption expenditures constituted about 68.94 percent of U.S. gross domestic product in Q1 of this year, according to the country's Bureau of Economic Analysis. And, of course, the BEA reported GDP contracted -2.90 percent in the same quarter.

In any case, XLP may begin to outperform SPY and most other Select Sector SPDRs on a relative basis as the Fed approaches the end of its current quantitative easing program, presumably to be announced in October. I anticipate the Health Care ETF (NYSEARCA:XLV) and the Utilities ETF (NYSEARCA:XLU) might accompany XLP in this comparative outperformance.

Figure 5: XLP Monthly Change, 2014 Vs. 1999-2013 Mean

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted monthly share price data at Yahoo Finance.

XLP behaved better in the first half of this year than it performed in the first halves of its initial 15 full years of existence, based on the means calculated by employing data associated with that historical period (Figure 5). The same data set shows the average year's weakest quarter was the first, with a negative return, and its strongest quarter was the fourth, with a positive return.

Figure 6: XLP Monthly Change, 2014 Vs. 1999-2013 Median

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted monthly share price data at Yahoo Finance.

XLP also behaved better in the first half of this year than it performed in the first halves of its initial 15 full years of existence, based on the medians calculated by using data associated with that historical period (Figure 6). The same data set shows the average year's weakest quarter was the first, with a comparatively small positive return, and its strongest quarter was the fourth, with a comparatively large positive return.

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

Source: Consumer Staples Select Sector SPDR ETF: XLP's 2014 Halftime Report And Seasonality