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Be selective when investing in the U.S. consumer
Not all stocks will be rewarded for higher spending
As the current consumer-driven economic expansion heads into its eighth year, investing in the U.S. consumer seems like a logical strategy. Higher consumer spending should theoretically boost a wide range of stocks in the consumer discretionary sector. In reality, the gains in that sector have been concentrated in just a few names — like Amazon, Home Depot, Netflix and McDonalds. The consumer discretionary sector has climbed 46% since the beginning of 2014. Without those four companies, however, the sector has actually declined more than 10%. These four firms are among the new breed of consumer-facing companies that are taking increasing market share partially due to disruptive trends and technological advances. Amazon’s growing influence in the retail industry through its expanding online consumer marketplace is just one example of a disruption that sets the company apart from others. The outsized returns of these four companies provide an example of how important fundamental investment research is in helping to identify companies that could benefit from higher consumer confidence and spending.
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