How To Play Consumer Confidence

Includes: IYK, VCR, XLP, XLY
by: Invest Chief

Earlier this week, the Conference Board released its Consumer Confidence Report for February and needless to say it blasted economists' predictions. Economists polled were looking for 63.0 but the report showed that the Consumer Confidence Index rose to 70.8. When you consider that consumer spending makes up about two-thirds of the US GDP, this is a very bullish sign. US consumers are finally starting to come around and see that the economic recovery is taking hold and they believe there are an increasing number of opportunities despite the rising oil prices.

While this is great news for the US economy and stock markets, you may be asking yourself "How can I play consumer confidence specifically?" There are a number of ways that you can trade the Consumer Confidence Index whether you are bullish or bearish. Here are some of the ways you can trade it on both sides:


If you believe consumer confidence is headed higher and you are ultimately bullish on the economy then I suggest you take the following actions:

A rising Consumer Confidence Index means consumers are more comfortable with their financial situation as well as confident on their personal and national finances. This means, generally, that consumers are more likely to spend a little more of their income. Stocks such as Ford Motor Corp (NYSE:F), Nike (NYSE:NKE), Home Depot (NYSE:HD), Amazon (NASDAQ:AMZN) and Walt Disney (NYSE:DIS) are some of my favorite names for this situation. On the flip side, if you do not want to pick your own stocks or want exposure to many different names, then I would suggest an ETF such as the Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) or SPDR Select Sector Consumer Discretionary ETF (NYSEARCA:XLY). These stocks and ETFs will certainly benefit from a rising confidence from consumers and an overall upbeat US economy.


If the CCI is falling or there is a weak outlook on the US economy, you may want to stick to a more bearish or neutral investment strategy. Here are some moves you can make if the opportunity presents itself:

In an ideal downturn when the CCI is down and the US is headed for choppy waters you could short the stocks listed above. However, that is a more risky approach that may not always yield the results you are looking for. A safer investment would be to invest in consumer staples. Consumer staples are items that need to be bought regardless of the economic situation. These are your basic items such as toothpaste, shampoo, discount clothing, tobacco, etc. The ideal stocks in this situation are Colgate Palmolive (NYSE:CL), Procter & Gamble (NYSE:PG), Ross Stores (ROSS), Limited Brands Inc (LTD) and Philip Morris International (NYSE:PM). If you prefer an ETF approach, then I would suggest SPDR Consumer Staples Select Sector ETF (XLP) or iShares DJ U.S. Consumer Goods ETF (IYK).

Knowing and having a strategy for different market conditions is an important part of being an intelligent and successful investor. Fighting the market will get you nowhere but in the red. That is why going with the flow and having a game plan for all situations is ideal. I would suggest writing down a bullish and bearish list for a number of different economic situations so that once an opportunity presents itself emotions will not take over because you are already prepared. Emotion-free investing is successful investing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.