Why XLY, Consumer ETFs Were Top Performers in 2024
U.S. consumers spent heavily on experiences, travel and leisure this year.
If you’ve done any traveling or shopping over the holidays, you’ve probably made some of the same observations as me—airports are full, highways are packed, restaurants and hotels are booked, and empty parking spaces are scarce.
For anyone who’s observed capital markets or traveled far beyond their home in 2024, it should come as no surprise that consumer ETFs like the Consumer Discretionary Select Sector SPDR ETF (XLY) are top performers this year.
The U.S. consumer is happy and has driven exchange-traded funds like XLY to outperform the S&P 500 as the consumer discretionary ETF is up 29% year to date, which compares to a 26% gain for the stock market benchmark, as measured by the SPDR S&P 500 ETF Trust (SPY).
Unlike consumer non-discretionary or consumer non-cyclicals, which focus on stocks of companies producing essential goods like food, beverages, and household products, consumer discretionary or consumer cyclicals include non-essentials like luxury items, travel, and entertainment.
Thus, when the U.S. consumer is feeling confident, consumer spending, which accounts for nearly 70% of U.S. gross domestic product (GDP), is generally robust.
In other words, a happy consumer means consumer discretionary ETFs like XLY can outperform the broader market, and it points to a healthy economy overall.
Why Discretionary Stocks and ETFs Outperformed in 2024
Consumer discretionary stocks and ETFs have performed well in 2024 due to several key factors:
- Strong consumer spending: A robust job market, wage growth and easing inflation have supported household spending on non-essential goods and services.
- Resilient economy: Despite higher interest rates, the economy avoided a severe downturn, boosting confidence in sectors tied to discretionary spending.
- Spending on experiences and travel: Companies that cater to travel and experiences, such as Booking Holdings (BKNG) and Live Nation Entertainment (LYV), both up more than 40% in 2024, also saw strong demand as consumers sought to make up for lost time during the pandemic.
- Market rotation: Investors sought opportunities in growth-oriented sectors, benefiting discretionary stocks as part of a broader risk-on sentiment.
These dynamics have supported strong performance for the consumer discretionary sector in 2024. Whether they continue in 2025 will depend on a continuation of these supportive conditions.
