This Stock Trade Sits Right Under Consumers' Noses
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View from the Observation Deck
  1. We did a blog post on 7/27/12 ("Don't Get Mad...Get Even...Or Better") suggesting that investors who spend a lot of dollars on energy, food and health care might want to consider investing in those sectors.
  2. Today's topic is similar and was inspired by the recent release of this year's holiday retail sales estimate from the National Retail Federation. Sales are expected to rise by 4.1% to $586.1 billion.
  3. While some pundits have argued that the axiom professing that consumer spending accounts for nearly 70% of U.S. annual economic output is too high, it is nevertheless a major driver of economic activity. 
  4. The Census Bureau announced that retail sales were up 5.4% (y-o-y) in September. Auto sales, alone, were up 8.1% (y-o-y). Housing is even staging a notable recovery. 
  5. This is happening at a time when Fed Chairman Ben Bernanke has publicly stated his displeasure with U.S. consumption levels.  Hence, his strong belief in the need for another round of quantitative easing. 
  6. The returns in the chart show that both the S&P Retail Select Industry Index (broad retail) and the S&P 500 Consumer Discretionary Index outperformed the S&P 500 (broad market) in each of the five time periods.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The following are unmanaged indices: S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance; S&P 500 Consumer Discretionary Index is a capitalization-weighted index and encompasses industries that tend to be the most sensitive to economic cycles; and S&P Retail Select Industry Index is an equity benchmark for U.S. traded Retail-related securities.
Posted on Thursday, October 18, 2012 @ 3:21 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.