The Summer Months – Consumer Discretionary Question Mark

Share post:

Historically, Home Depot and Lowe’s often experience higher sales in the spring and summer seasons due to the nature of their business. During this period, many homeowners and contractors embark on home improvement and construction projects, leading to increased demand for their products and services.

The consumer discretionary sector, also known as the cyclical consumer goods and services sector, is a category of stocks that represents companies that sell non-essential goods and services. These are items and services that consumers are willing to spend on when they have extra income and are likely to cut back on during tougher economic times.

The performance of the consumer discretionary sector is heavily dependent on the state of the economy. In a growing economy, consumers have more disposable income to spend on these discretionary items, which can boost the revenues and profits of companies in this sector. However, in a recession, consumer discretionary stocks are often hit hard as people cut back on unnecessary spending.

Consumer discretionary stocks tend to be more sensitive to economic cycles compared to other sectors. During a recession, when unemployment rates rise and household incomes fall, consumers typically cut back on non-essential or discretionary spending. This can result in lower sales and profits for companies in the consumer discretionary sector, which can, in turn, lead to lower stock prices.

Here are a couple of historical examples:

2008-2009 Global Financial Crisis: The Global Financial Crisis, triggered by the collapse of the housing market in the United States, led to a severe global recession. Many consumer discretionary stocks were hit hard. For example, Ford Motor Company’s stock price fell from a high of around $8.50 in 2007 to a low of $1.50 in 2009. Similarly, shares of luxury goods company Tiffany & Co. dropped from around $57 in 2007 to about $20 in late 2008.

Dot-Com Bubble (2000-2002): While the dot-com bubble primarily affected technology stocks, the resulting recession also had an impact on consumer discretionary stocks. For instance, shares of The Gap Inc., a clothing retailer, declined from over $50 in 2000 to around $10 in 2002.

Consumer Discretionary ETFs to Watch

Consumer Discretionary Select Sector SPDR Fund (XLY): This fund tracks the Consumer Discretionary Select Sector Index. Some of its top holdings often include Amazon, Tesla, and Home Depot.

Vanguard Consumer Discretionary ETF (VCR): This ETF tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index. Some top holdings usually include Amazon, Tesla, and Home Depot.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS): This fund seeks to track the performance of the MSCI USA IMI Consumer Discretionary Index. Top holdings often include Amazon, Tesla, and Home Depot.

iShares U.S. Consumer Services ETF (IYC): This ETF tracks the Dow Jones U.S. Consumer Services Index. Some of its top holdings often include Amazon, Home Depot, and Comcast.

Related

Bull market for prolonged-dated Treasuries, iShares ETF

The iShares 20+ Year Treasury Bond ETF illustrates a pronounced bull market for US long-dated Treasuries, underpinned by imminent inflation worries and a potential economic downturn.

Grayscale mulls tax implications for Bitcoin ETFs

Grayscale is contemplating the possible tax implications that spot Bitcoin exchange-traded funds (ETFs) might bring about. This move indicates the company's proactive approach to handle regulatory and compliance issues.

The Rise of Crypto ETFs: Weighing the Pros and Cons

The world of finance has seen a significant shift in recent years with the rise of cryptocurrencies. As...

Multiple filings for potential bitcoin exchange-traded products (ETFs)

The U.S. Securities and Exchange Commission (SEC) has multiple filings for potential bitcoin exchange-traded products (ETFs) currently under...