A Matter Of WANT Over NEED

Given the previous six months, April stands to be a proving ground for the market at large. Major indexes are coming out of the first quarter up anywhere from 14 percent, in the case of the S&P 500 and Dow Jones Industrial Average, to 19 percent for the Nasdaq Composite.

However, these results follow a brutal fourth-quarter that saw those same indexes shave off about that much to end 2018.

In that span, the Fed has paused its hawkish interest rate plan, the status of U.S.-China trade relations has remained much the same, and economic data hasn’t set off any major alarm bells. Even sharply declining retail sales figures haven’t significantly impacted ETFs with exposure to consumer spending, such as the Direxion Daily Consumer Discretionary Bull 3X Shares WANT, which is up more than 70 percent year-to-date.

Chart: Yahoo Finance; Data as of 4/23/19. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For standardized performance, click here

On paper, it might seem as though the market is nearly back where it was six months ago.

However, there is one major difference between then now. That is, with first-quarter earnings already rolling in, expectations about how well companies fared in the initial months of 2019 are far less rosy than they were throughout 2018. Overall predictions for corporate earnings are for more muted compared to the 70 and 80 percent surprises Wall Street has been seeing in recent years. On the more dire end, co-founder of market research firm DataTrek Nick Colas told CNBC they expect a nearly 4 percent drop in overall annual comp sales based on lower analyst revenue estimates across the board.

While first-quarter earnings will ultimately be a matter of wait and see, previously disappointing quarterly results from the likes of The Home Depot HD, TJX Companies Inc. TJX or Booking Holdings Inc. BKNG have kept those stocks from retaking highs they lost during last December’s rout. More misses in the sector could derail the market’s general bullishness on consumer discretionary.

On the other hand, consumer staples like Procter & Gamble Co. PG PepsiCo, Inc. PEP and Mondelez International Inc. MDLZ have all recently made new 52-week highs. While the sector had an equally mixed fourth-quarter as its discretionary cousin, the low-beta nature of the sector has meant that ETFs, like the Direxion Daily Consumer Staples Bull 3X Shares NEED, has managed to climb nearly 39 percent since the start of the year.

Chart: Yahoo Finance; Data as of 4/23/19. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For standardized performance, click here

Depending on just how much of a shock consumer earnings turn out to be, either NEED or the inversely leveraged Direxion Daily Consumer Discretionary Bear 3X Shares PASS (down 44 percent YTD) could see potential upside from earnings anxiety. In any case, traders should stay abreast when these companies begin to report at the end of April and all the way into May.

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Distributor: Foreside Fund Services, LLC.