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What Lies Ahead of Leisure & Travel ETFs in 2H?

U.S. leisure and entertainment stocks and ETFs have held up well in the last six months (as of July 10, 2017). Initially, the Trump administration was thought to be a headwind for the space as his travel ban cast a pall on hotels that play a crucial role in the travel supply chain. However, uncertainty related to Trump’s proposed policies took an upper hand in the first half of 2017, which resulted in decent performances in leisure stocks.

Plus, stronger consumer confidence, rising wages and better corporate health boosted both demand from vacations and business-related travel. Notably, consumer expectation rose to an about 16-year high. As per the Conference Board, individuals viewing good business conditions rose to 30.8% from 29.8%, while those who think the other way declined to 12.7% from 13.9%.

Against this operating backdrop, the U.S. hotel industry was projected in January 2017 to log slower but steady growth through 2018, according to STR and Tourism Economics' first forecast of 2017. On the other hand, despite all worries about the crackdown on illegal money transfer and economic slowdown, the mecca of casino gaming – Macau – is returning to life.

And casino stocks’ performance was highly related to Macau’s performance. The casino ETF had every reason to give a stellar performance this year. Macau posted a 25.9% surge in revenues in June, riding on an 11-month winning streak and beating the previous month’s 24% gains. However, revenues still lagged the estimate of 30% expansion, probably on stricter regulations (read: Time to Buy Casino ETF on Earnings?).

Can the Rally Last in 2H?

First of all, the Supreme Court recently permitted a partial version of President Trump's travel ban. This may spoil the party of travel stocks in the second half of this year. As per National Iranian American Council research director, “the revised travel ban could cause a hit to the tourism industry upwards of $18 billion over the next few years.”

Then again, the revised travel ban is limited to countries like Iran, Libya, Somalia, Sudan, Syria and Yemen. Since the exposure of travel stocks are much greater globally, the restrictions are less likely to hurt stocks right now. Rather, prospects of a rising U.S. dollar in the wake of the Fed’s policy tightening is a much bigger threat which can meaningfully curb international travel.

On positive side, the U.S. Travel Association indicated that international travel to the U.S. was up 5.2% in May year over year, reflecting the 13 successive months of positive year-over-year growth. Domestic travel is projected to increase over the next five months by 2.2% year over year. U.S. restaurant traffic also remains decent lately with increases in consumer spending.

ETF Performances

Overall, the uptrend started losing momentum entering into the second half.US Global Jets ETF (JETS), VanEck Vectors Gaming ETF (BJK), PowerShares Dynamic Leisure and Entertainment Portfolio ETF (PEJ) and USCF Restaurant Leaders MENU added about 13.3%, 13.6%, 3.0% and 5.2% in the last six months (as of July 10, 2017) against an 8% gain in the S&P 500-based ETF SPY (read: ETFs & Stocks to Gain Height on Busy Air Summer Travel).

On the other hand, BJK, MENU and PEJ lost about 3.4%, 1.4% and 0.9% in the last ten days (as of July 10, 2017) against a 0.3% slide in SPY. Only JETS stood tall with a 3.5% rise during this time frame probably due to lower oil prices and strengthening industry dynamics (read: 5 ETFs to Buy as Crude Crashes on Inventory Built).

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PWRSH-DYN LE&EN (PEJ): ETF Research Reports
 
VANECK-GAMING (BJK): ETF Research Reports
 
USCF-RSTRNT LDR (MENU): ETF Research Reports
 
US GLOBAL JETS (JETS): ETF Research Reports
 
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