- Bullish on consumer discretionary names (NYSEARCA:XLY) since the financial crisis, Thomas Lee downgrades the sector to Neutral while upgrading the beaten-down energy group (NYSEARCA:XLE) to Overweight.
- At issue for consumer stocks is strengthening labor markets leading to higher wages, and thus driving margin compression. October's strong jobs report confirms what Lee has been hearing anecdotally - it's harder to find qualified applicants.
- Rotating money into energy, Lee sees reflation, potential dollar declines, and accelerating U.S. investment spending. Lee takes note of the round-trip of energy vs. consumer discretionary. Starting the energy/consumer discretionary ratio at 1 in about 2004, it rose to above 4 prior to the global financial crisis, and has fallen all the way back to 1 today (chart here).
- ETFs: XLE, VDE, ERX, XLY, OIH, ERY, DIG, XRT, VCR, DUG, BGR, IYE, FENY, RTH, RETL, FIF, PXJ, RYE, FXD, FDIS, FXN, RCD, PMR, DDG