Consumer Discretionary (XLY) is in a bullish formation but confidence is not.
According to the government, consumer spending rose by 3.6% in 1Q10 as compared to a 1.6% gain in 4Q10. The increase was the biggest since the first quarter of 2007. The strong consumer spending numbers are clearly being reflected in the Consumer Discretionary (XLY), which is in a Hedgeye Risk Management BULLISH FORMATION. Looking at the year-to-date performance (coming into today), the XLY is the second best performing sector up 19.4%, right behind the Industrials (XLI) at 20.0%.
This is in contrast with consumer confidence figures that do not reflect the level of spending being reported by the government. Today, the Reuters/University of Michigan final consumer confidence reading for April dropped to 72.2, from a reading of 73.6 in March.
The figure stands in contrast to the Conference Board Consumer Confidence Index which was reported increases in both March and April. The April reading was 57.9, up from 52.3 in March. The Conference Board survey showed American consumers’ sentiment in April increased to the highest level since September 2008.
Today's University of Michigan print is in line with the long term pattern of lower highs in consumer confidence that Keith discussed in our 03/26/10 note titled, “CONFIDENCE: IS IT REALLY A NEW SEASON IN AMERICA?”. The questions posed in that note have not been sufficiently addressed and the chart below reflects that reality. The storytelling that is so pervasive on Wall Street and in Washington is not being bought on Main Street.