The consumer-led recession you’re worried about actually ended months ago, the stock market says

A relative-strength chart maps how one charted instrument performs against another. On that basis, the Consumer Discretionary Select Sector SPDR exchange-traded fund
XLY,
-0.01%
has been outperforming the S&P S&P 500 ETF
SPY,
-0.25%
since the end of last year, enough to suggest a new uptrend started this past week.

Basically, what the stocks are saying appears to dispute the warnings in recent earnings reports from a number of retailers, including Target Corp.
TGT,
-2.48%,
Home Depot Inc.
HD,
+0.04%
and Dollar General Corp.
DG,
+0.09%,
about weakening demand for discretionary items.

“The consumer continues to be the star of the show and the market is sniffing it out,” said Ryan Detrick, chief market strategist at Carson Group.

The low in the chart hit in late April was higher than the low in late December, while the highs seen over the past week were above the high reached in early February. Many technicians on Wall Street believe a pattern of higher lows and higher highs is what defines an uptrend.

The better-than-expected government retail sales report on Thursday was a fundamental confirmation of what the charts have been saying.

Read: U.S. consumer sentiment rises to a 4-month high on easing inflation and end to debt-ceiling fight.

The consumer’s well-being is critical for the health of the overall economy, as consumer spending accounts for about 68% of U.S. gross domestic product.

A longer-term chart suggests the consumer-led recession that many have been expecting for about the past year appears to have ended about six months ago.

“The market is acting like the recession has already happened, and we’ve entered the recovery,” said Craig Johnson, chief market technician at Piper Sandler. “The consumer sector historically does very well coming off of bear market lows.”

There are those that say the performance of the consumer discretionary ETF, or XLY, should be taken with a grain of salt, since only two of its 53 components account for more than 40% of the ETF’s weighting as of June 15 — Amazon.com Inc.’s stock
AMZN,
-0.72%,
which carries a 25.0% weighting has run up 50% year to date and Tesla Inc. shares
TSLA,
+1.66%,
with an 18.7% weighting, have soared 113%. In comparison, the S&P 500 index
SPX,
-0.22%
has gained 15% this year.

But that’s no reason to disregard the ETF’s message altogether.

Carson’s Detrick said while Amazon and Tesla are certainly among the key reasons for the XLY’s outperformance, there’s a lot more to the sector’s strength than just two stocks.

“There are some really positive things happening under the surface,” Detrick said. “People are getting out there and spending.”

Other XLY components that have outperformed the S&P 500 this year come from a number of different subsectors, including cruise operators, home builders, other auto makers and sellers, travel bookers and casino operators.

So rather than a “hard landing” for the economy (a deep recession or another sharp stock market selloff) or a “soft landing” (a mild recession), Detrick said he’s in the “no landing” camp.

“As long as the consumer is still strong, we’re not going to have a recession,” Detrick said.

Nasdaq’s strength versus the Dow bodes well for the economy

Piper Sandler’s Johnson said besides the strength in the XLY, there’s another chart that suggests the recession has already ended:

Johnson said the Nasdaq Composite
COMP,
-0.52%
has outperformed the Dow Jones Industrial Average
DJIA,
-0.17%
by more than 10 percentage points for a quarter at the end of five of the last five recessions.

And for the first quarter that outperformance was by more than 13 percentage points, as the Nasdaq rose 16.8% and the Dow gained 3.4%.

“For now, stocks are working, and the more the market keeps working, the more wealth people are going to [feel they] have,” Johnson said.