Lower Gas Prices: Who Wins?
Published on Tuesday, 12 June 2012 19:56 Written by Todd Shriber
There are a few irrefutable facts about the U.S. economy. One is that the consumer accounts for about two-thirds of the GDP in the world’s largest economy. The second is that high gas prices act as a tax, not only on consumers, but plenty of sectors that really on energy commodities to make their businesses hum.
Simply put, high gas prices don’t benefit anyone, not even the oil companies. Oil companies face crimped refining margins and demand destruction when gas prices rise too much, and the impact is felt on their share prices. That scenario can trigger losses across the broader market.
To that end, it’s good news that the U.S. Gasoline Fund (NYSE: UGA), the ETF that tracks NYMEX-traded unleaded gasoline futures, has plunged almost 10% in the past month. That means consumers are getting some relief at the pump and money saved at the pump can be used for other activities that actually help the broader economy. So, next time you see UGA tumbling, these ETFs might be climbing.
Guggenheim Airline ETF (NYSE: FAA):
Did you know that every time the price of oil rises by $1, the global airline industry loses over $1 billion? That’s a fact and it’s a fact that means the airline sector is more inversely correlated to the price of oil than any other group. FAA has fallen 4.4% in the past month, but it’s not because of oil prices. That decline is attributable to concerning U.S. economic data and comments from airlines that Europe’s sovereign debt crisis is impacting their margins.
PowerShares Dynamic Leisure & Entertainment Portfolio (NYSE: PEJ):
The PowerShares Dynamic Leisure & Entertainment Portfolio has been highlighted as an ideal way to play the newly arrived summer travel season. Home to stocks such as Priceline (NASDAQ: PCLN) and Walt Disney (NYSE: DIS) along with an array of casual dining and hotel names, PEJ is the epitome of a discretionary play. On that basis, the ETF’s constituents should benefit as more travelers take advantage lower gas prices and hit the roads this summer.
Consumer Discretionary Select Sector SPDR (NYSE: XLY):
As the big kahuna of the discretionary retail ETF space, XLY offers exposure to practically every corner of the discretionary space. XLY counts high-end and discount retailers among its holdings, as well fast food and casual dining firms, automotive manufacturers, e-commerce and apparel names and travel plays.
What that all means is that if consumers are having to spend more to fill up their tanks, they’ve got less money to spend on the goods and services offered by XLY’s constituents. Low gas prices equal good news for XLY.
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