Consumer Discretionary Deep Dive - 12/6/2023
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Consumer Discretionary is one of just 3 sectors outperforming the S&P 500 this year, gaining 34% compared to the benchmark’s 19% YTD return. Only the Information Technology (+50%) and Communication Services (+45%) sectors have done better.
Those three sectors have something in common: they’re all home to mega cap growth stocks. For Consumer Discretionary, it’s Amazon and Tesla, which together comprise roughly 40% of the sector’s market cap. As we’ve discussed several times over the past few weeks, growth stocks are facing tough seasonal headwinds as we close out the year. Historically, growth has lagged value more consistently in December than any other month. The same goes for the Discretionary sector as a whole. The final month of the year has seen Discretionary lag by an average of 0.35% over the last 30-plus years.
Meanwhile, the Consumer Discretionary sector is stuck below stiff resistance at the summer 2022 highs. That fits in well with our belief that the next few weeks could be tough ones for the sector to gain ground.
Fortunately, the Consumer Discretionary sector is a diverse one below the surface, and that means there are some opportunities when we dig a little bit deeper. Check out the chart below, which shows the equally weighted group compared to the S&P 500 index. The ratio just rebounded off of last year’s lows.
Still, we need to be very selective.
Just because the equally weighted sector is outperforming doesn’t mean that the majority of stocks are rising. In fact, there are nearly identical numbers of stocks in technical uptrends and downtrends. Forty-seven stocks are above rising long-term moving averages, and 45% are below falling ones. Thirty-eight percent of stocks are above rising intermediate-term moving average, and the exact same number are below falling ones. Only the short-term trends are decidedly bullish.