In the battle for market leadership, consumer discretionary stocks are nipping at technology's heels. Some market watchers agree that one of the high-flying groups is the better bet going forward.
The S&P 500 tech sector is the top performer this year, rallying nearly 17 percent, while the consumer discretionary sector is up a little more than 15 percent in the same period. The two groups have surged alongside each other this year amid strong rallies by technology names such as Netflix, Amazon and Advanced Micro Devices.
In the last week, discretionary has a leg up on tech. When asked which of the groups proves to be the smarter bet, Frank Cappelleri, head market technician at Instinet, said he'd choose the discretionary stocks. He pointed to the XLY ETF, which tracks the group, trading in a multiyear uptrend.
"The XLY was down 11 percent in February and again, 9 percent in March; both have led to buying opportunities and new highs," he told CNBC's "Trading Nation" on Thursday.
Consumer discretionary hasn't always fared so well relative to technology. Notably, the strong performance in the XLY relative to the tech-tracking XLK ETF is a "relatively new phenomenon," Cappelleri said, pointing out that its rally really started taking off near the end of 2017 when retail stocks gained ground. This relative uptrend, along with the extended condition of some of the XLK's constituents, adds to his bullish thesis.
Other market watchers agree discretionary is the better bet of the two leading sectors. Technology has taken it on the chin in recent months as a tech names, many with high multiples, have fallen in part due to privacy concerns, international trade tensions and weaker-than-expected earnings.
"We definitely prefer consumer discretionary over tech. I think the bottom line is that lower unemployment means you've got more consumers who have the ability to spend. I know wage growth is only growing modestly at 2.7 percent year over year, but we want to buy assets when there's the potential for a catalyst," Mark Tepper, president and CEO of Strategic Wealth Partners, said Thursday on "Trading Nation."
Consumer discretionary can stand to benefit from any "spike" in average hourly wages, Tepper said, which makes him more likely to bet on that sector over tech. He added that the market has high expectations for internet-based technology stocks, which has led to some of their declines.
