Consumer Discretionary Select Sector SPDR ETF: 2014 Halftime Report And Seasonality

Jul.13.14 | About: Consumer Discretionary (XLY)

Summary

The Consumer Discretionary ETF was the No. 9 performer ranked by returns among the nine Select Sector SPDRs during the first half of 2014.

The ETF significantly underperformed its parent proxy SPDR S&P 500 ETF by 6.45 percentage points over the same period.

Seasonality analysis indicates a worse third quarter and a better fourth quarter, but I would not count on the latter.

The Consumer Discretionary exchange-traded fund (NYSEARCA:XLY) in the first half of this year ranked No. 9 by returns among the Select Sector SPDRs that section the S&P 500 into nine subdivisions. On an adjusted daily share-price basis, XLY inched up to $66.74 from $66.41, an increase of 33 cents, of 0.50 percent. (It closed at $67.39 Friday.)

XLY in the first half thus underperformed all its siblings and its parent proxy, the SPDR S&P 500 ETF (NYSEARCA:SPY), which climbed 6.95 percent.

Figure 1: Consumer Discretionary ETF Top 10 Holdings As Of July 10

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Note: The XLY holding-weight-by-percentage scale is on the left (green), and the company price/earnings-to-growth ratio scale is on the right (red).

Source: This J.J.'s Risky Business chart is based on data at the State Street Global Advisors site (current as of July 10) and Yahoo Finance (current as of July 11).

Three massive equity-market bubbles are associated with the 21st century. The technology sector was ground zero when the first one burst. The financial sector was ground zero when the second one burst. And the consumer-discretionary sector may be ground zero when the third one bursts.

Many of XLY's component companies appear mispriced, either by a little or by a lot (Figure 1). I mentioned one of them in my "Amazon.com: The Most Overvalued Profitable Company In The S&P 500, Still." This overvaluation might plague the ETF during the stock market's next period of adjustment.

Figure 2: XLY No. 9 Among Select Sector SPDR ETFs This Year

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

XLY's behavior on absolute and relative bases should be greatly influenced by the U.S. Federal Reserve's actions before and after the ending of its present quantitative-easing program (presumably around October) and the beginning of its interest-rate hikes (presumably around April).

Figure 3: XLY Monthly Change, 2014 Vs. 1999-2013 Mean

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

XLY behaved much worse 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 3). The same data set shows the average year's weakest quarter was the third, with a small negative return, and its strongest quarter was the fourth, with a large positive return.

Figure 4: XLY 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.

XLY also behaved much worse 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 4). The same data set shows the average year's weakest quarter was the third, with a relatively small negative return, and its strongest quarter was the fourth, with an absolutely large positive return.

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