2023 in Charts: 5 ETF Sector Stories

2023 was a year of surprises. These are five key sector themes illustrated in charts that dominated the ETF world this past year.

1. Consumer Discretionary Sector Stronger for Longer Than Expected

Consumer strength has been one of the most interesting stories since the start of the pandemic. When the consumer started losing steam, that translated into weakness in certain discretionary stocks like clothing and retail goods. But the consumer discretionary sector is broad. Overall high performance persisted due to spending on discretionary services. To maintain a high level of spending on services, consumers will likely continue to pull back on discretionary goods, while looking for discounts in consumer staples. Staples are typically more stable when the economy is weak; however, prices have stayed relatively lower than expected.

XLY to XLP Price Ratio Higher Than Expected

The chart above shows a ratio of the price of the consumer discretionary sector to the price of the consumer staples sector. This ratio tends to be higher when consumers are more confident. But because of the current economic environment and lower prices in consumer staples ETFs, the consumer staples sector could be undervalued compared to the consumer discretionary sector. The consumer staples sector could see some price normalization as consumers change their spending habit and investors grow more defensive. This means sector ETFs like the Consumer Staples Select Sector SPDR Fund (XLP), Vanguard Consumer Staples ETF (VDC), and iShares US Consumer Staples ETF (IYK) (along with other ETFs listed below) may show strength as the discretionary sector falls.

Consumer Staples ETFs Currently Underperforming