America’s increasingly K-shaped economy is showing up loud and clear in ETF performance-and the winners are the funds tied to service spending, travel, experiences, and digital consumption. While lower-income households pull back, affluent consumers are keeping service-sector ETFs surprisingly resilient, offering investors a rare pocket of strength in an otherwise uneven backdrop.
The divide is the most prominent among consumer ETFs:
- The Invesco Dynamic Leisure & Entertainment ETF (ARCA; PEJ) tracks restaurants, entertainment, and live events. The fund benefits from persistent demand among higher-income households for dining out, concerts, and experiences. The fund is up 14% so far this year.
- The iShares U.S. Consumer Services ETF (NYSE: IYC) covers media, travel, retail services, and online platforms. It has similarly held steady, buoyed by discretionary spending that hasn’t meaningfully slowed. The fund has gained 8% YTD.
- The Amplify Online Retail ETF (NYSE: IBUY) is surging to a record on the back of record Black Friday and Cyber Monday sales. High-income consumers are leading online demand for everything from electronics to apparel and home goods.
Meanwhile, the Consumer Discretionary Select Sector SPDR Fund (NYSE: XLY) remains anchored to higher-end consumption trends, which continue to outpace the rest of the market, which is heavy with service-oriented giants such as Amazon.com, Inc. (NASDAQ: AMZN) and Starbucks Corp (NASDAQ: SBUX).
Meanwhile, funds more exposed to lower-income consumers, like SPDR S&P Retail ETF (NYSE: XRT), aren’t as fortunate. Weakness in small-business hiring and affordability pressures on Main Street are weighing on broad retail performance: a classic sign of the “bottom of the K” struggling to keep up.
This split, however, appears counterintuitive yet stabilizing to Bank of America economist Aditya Bhave. Spending from rich households can drive the labor market, even amid soft payroll numbers and small-business job losses, given that five of every six jobs in the U.S. are in services, said Bhave, quoted on Yahoo Finance. It’s something echoed by executives on conference calls, like Macy’s CEO Tony Spring, who spoke of stronger spending at Bloomingdale’s despite pullbacks among budget-conscious shoppers, thus benefiting from a K-shaped economy.
The risk, of course, is what happens if the “top of the K” eventually cracks. But for now, online holiday sales and resilient discretionary demand suggest service-sector ETFs may continue to enjoy this high-income tailwind.