History back to 1990 says this surging sector can post big numbers for rest of year despite trade war

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Consumer discretionary's strong performance bodes well for the rest of 2019
Key Points
  • Since 1990, the consumer discretionary sector has a perfect track record — five for five — of posting big full-year returns after starting the first four months of the year strong.
  • Amid the flare-up in the U.S.-China trade war, some of the largest holdings in the consumer discretionary index also are among stocks Wall Street has been recommending to clients.

Consumer discretionary was the second-best performing sector through the first four months of the year with a return of about 22 percent.

That didn't beat information technology, the top performer, with a gain of about 28%. But from here on out, consumer discretionary — which can be traded through many big exchange-traded funds like the Consumer Discretionary Select Sector SPDR (XLY) or Vanguard Consumer Discretionary Index ETF (VCR) — has something going for it that not even technology can match: a perfect, if limited, history of big returns after strong starts to calendar years.

Since 1990, when consumer discretionary has gained at least 15% from January through April, the sector has always been positive through the remainder of the year, according to a CNBC analysis of Kensho, a machine-learning tool used by Wall Street banks and hedge funds to mine potential trading profits from historical market data.

It's happened 5 times and the average return was more than 11%.

Consumer Discretionary stocks soared January through April. That's good for the rest of the year.
Kensho

The Vanguard consumer discretionary ETF has been one of the hottest sector bets with investors among U.S. equity funds, taking in near-$200 million in assets in May. BlackRock's iShares US Consumer Services ETF (IYC) has been the biggest winner with investor among U.S. equity funds in the past week, taking in $75 million, according to data from XTF.com.

Amazon is the No. 1 holding in the consumer discretionary index and all three of the ETFs — XLY, VCR and IYC.

Wall Street stock pickers have also zeroed in on Amazon as one of the stocks that may outperform amid trade tensions between the U.S. and China.

Goldman Sachs cited the "services" component of Amazon and other stocks as a reason to hold during market volatility triggered by Chinese tensions, and also pointed clients to Home Depot and McDonald's.

Home Depot and McDonald's are among the top 10 holdings in all the big consumer discretionary ETFs.

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VIDEO1:0301:03
Stocks up more than 10% through April is a good indicator for the rest of...
Key Points
  • Since 1980, an S&P 500 return of 10% or greater in the January through April period has been followed by solid full-year returns in the S&P, Dow Jones Industrial Average and Nasdaq Composite.
  • The Federal Reserve's dovish policy in 2019 has been seen as the primary driver of the stock surge. Comments from Fed chairman Jerome Powell on Wednesday that low inflation is "transitory" and an interest rate cut is not warranted sent the Dow down by more than 150 points.