Wall Street Weekahead: Sagging consumer discretionary shares look for a spark

By Chuck Mikolajczak NEW YORK (Reuters) - The strength of the U.S. consumer has been often cited as a pillar of the economy and one of the reasons the S&P 500 has recently scaled new heights, but consumer discretionary stocks have skipped the party for several months

Reuters November 16, 2019 07:06:00 IST
Wall Street Weekahead: Sagging consumer discretionary shares look for a spark

Wall Street Weekahead Sagging consumer discretionary shares look for a spark

By Chuck Mikolajczak

NEW YORK (Reuters) - The strength of the U.S. consumer has been often cited as a pillar of the economy and one of the reasons the S&P 500 has recently scaled new heights, but consumer discretionary stocks have skipped the party for several months.

The S&P consumer discretionary sector <.SPLRCD> hit a record high on July 15. But while the S&P 500 has continued to climb to new highs, discretionary stocks have gone in the opposite direction, falling nearly 4%. [.N]

Graphic: Consumer discretionary lags broader market, https://fingfx.thomsonreuters.com/gfx/mkt/12/8768/8682/Pasted%20Image.jpg

Subsequent attempts by the sector have fallen short, with the index making lower highs, indicating a downtrend.

Graphic: Consumer discretionary in a downtrend, https://fingfx.thomsonreuters.com/gfx/mkt/12/8766/8680/Pasted%20Image.jpg

The disappointing performance for the sector comes as U.S. companies continue to point to strong domestic spending.

On Friday, data showed retail sales rebounded in October, although purchases of big-ticket household items and clothing were curtailed. Bank of America Merrill Lynch said its U.S. consumer confidence indicator bounced further in the survey period through Nov. 12, but remained below July's levels.

According to Refinitiv data, 65% of the companies in the sector that have reported earnings have topped expectations, below the 74.6% beat rate for the S&P 500 as a whole through Nov. 15. The third-quarter year-over-year earnings growth rate for the sector has tumbled to 0.9% from the 9.9% anticipated at the start of the year.

"Earnings across the board have been pretty lacklustre - it may be reflective of the consumer taking a little bit of a pause. Consumer spending has been solid but it hasn’t been robust," said David Joy, chief market strategist at Ameriprise Financial in Boston.

Research firm CFRA forecasts retail sales for the holiday season months of November and December to rise 4.3% to $1.05 trillion. However, CFRA retail analyst Camilla Yanushevsky believes the growth is more a result of an easier comparison with last year, when figures were distorted by the government shutdown. U.S. consumers are not as strong at this time as they were a year ago, she says.

"This is a very confusing time for investors looking at this sector," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. "Whither the sales?"

A big overhang on these stocks has been the trade war, said Yanushevsky, and the perceived progress in negotiations between the United States and China has been a big factor.

Another round of tariffs on about $156 billion in Chinese imports is scheduled to take effect on Dec. 15, raising prices on many consumer products, such as cell phones. Negotiators for the two countries are attempting to reach a deal to cancel current tariffs in phases.

"Right now there is not much optimism; it is kind of a wait- and-see before reacting approach," said Yanushevsky. "If there is some sort of optimism like a Phase 1 deal is signed and then there is a clear path to Phase 2 and Phase 3, that could reignite that optimism that we saw in the beginning of the year with the securities."

Underperformance in Amazon , by far the biggest weight in the sector at over 20%, has contributed to the lacklustre returns for the sector. Investors have rotated into beaten-down stocks that have become cheap, such as financials <.SPSY> and energy <.SPNY> names, which have gained more than 3% this month.

"If you back the lens up and say 'How has consumer discretionary done for the whole year and when did it top out?', it topped out right when we started to cycle into the things that hadn't been working," said Art Hogan, chief market strategist at National Securities in New York.

With Amazon having already reported results, investors will get a look at results from a host of companies in the sector next week, including its second-largest weight, Home Depot .

Other consumer discretionary names due to post results in coming days include Target , Nordstrom , Kohl's and Lowe's Companies .

"The fact we are having rotations is healthy because that just means we are not glued to what has been working in 2019," said Hogan. "As consumer discretionary goes through that mini-rotation, it probably comes out of it and next week is probably that catalyst to at least see what has been overdone on the downside here."

(Additional reporting by April Joyner; Editing by Alden Bentley and Dan Grebler)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Aurora Cannabis plans more layoffs, facility closures amid industry turmoil
Business

Aurora Cannabis plans more layoffs, facility closures amid industry turmoil

By Arunima Kumar (Reuters) - Aurora Cannabis on Tuesday announced a new round of staff reductions and plans to shut five facilities over the next two quarters, as the COVID-19 pandemic pummels the cash-crunched cannabis industry. For most marijuana companies in Canada, which legalized recreational cannabis in October 2018, profits have proven elusive due to fewer-than-expected retail stores, cheaper rates on the black market and slow overseas growth. The industry has been further hit by the COVID-19 crisis, which has also upended financial markets, making it harder to get investor dollars

India levies charge on some steel imports from China, Korea, Vietnam
Business

India levies charge on some steel imports from China, Korea, Vietnam

NEW DELHI (Reuters) - India has imposed an anti-dumping duty on flat rolled steel products that are plated or coated with alloy of aluminium and zinc originating in, or from China, Vietnam and South Korea, according to a government order https://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-act/notifications/notfns-2020/cs-add2020/csadd16-2020.pdf issued on Tuesday. The duty will be in the range of $13.07-$173.10 per tonne for 5 years, according to the statement

Gold vaults to highest since October 2012 as dollar stumbles
Business

Gold vaults to highest since October 2012 as dollar stumbles

By Diptendu Lahiri (Reuters) - Gold prices surged to their highest since October 2012 on Tuesday, driven by a weakness in the U.S. dollar and widespread monetary stimulus packages by central banks as a jump in coronavirus cases dents the economic outlook