When the economy shrinks, people are unlikely to spend their money on non-essentials. This means they have discretionary income to spend on non-essential items. Discretionary goods are those whose consumption is not due to a need, they are not essential or necessary, but rather they are related to the satisfaction of fulfilling a want or desire.
It uses a very strict definition of “staples” — basically, “things you can’t live without.” As you’ll see in the next section, many common housewares are also considered consumer discretionary products. You might be wondering whether the automobile industry really belongs in the consumer discretionary sector, given that many Americans need a car to get to work. Our partners cannot pay us to guarantee favorable reviews of their products or services. As of April 2022, the company had more than 34,948 locations across the globe and expects to have 55,000 locations by 2030, indicating no shortage of growth opportunities.
All Consumer Discretionary investments from Fidelity
Real gross domestic product rose 1.1% in the first quarter of 2023, according to the Bureau of Economic Analysis’ advance estimate, after rising 2.6% in the fourth quarter of 2022. It is an expression used in finance to indicate the consumer segment that is subject to the discretion of consumers, to contrast with consumer staples. Companies that convert unfinished goods into finished durables used to manufacture other goods or provide services.
Companies that supply these types of goods and services are usually either called consumer discretionaries or consumer cyclicals. The household durables industry manufactures products that cannot be consumed immediately and are bought only infrequently. Examples of household durable goods include lawn and garden equipment, home and office furnishings, appliances, photographic equipment, and sporting goods. Examples of restaurant, hotel, and leisure companies include McDonald’s Corporation (MCD) and Carnival Corporation (CCL), a cruise vacation company. H&R Block provides tax preparation, tax advice, and planning services, while Graham Holdings is a diversified education and media company with well-known brands such as Kaplan, Inc. and The Slate Group. The key is to monitor this spending behavior closely, particularly if geopolitical factors or higher inflation throws a wrench on the trend.
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Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Carmakers, clothing labels, restaurants and retailers all fit into one of its four industry groups.
- As of April 2022, the company had more than 34,948 locations across the globe and expects to have 55,000 locations by 2030, indicating no shortage of growth opportunities.
- The consumer discretionary sector comprises businesses that sell nonessential products and services that consumers may avoid without any major consequences to their well-being.
- Research Sector and Industry performance Get the latest news and analysis for sectors and industries.
- Considering the purchase of a consumer discretionary good depends upon an individual financial condition and the economic landscape.
Companies that serve the electronics and computer industries or that manufacture products based on the latest applied science. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. With the economy continuing to reopen, Disney looks poised to be among the winners in the recovery. The company reported a surge in profits in its parks and resorts segment, and it could even post record attendance due to pent-up demand. The company also owns much of the real estate that its franchised restaurants occupy, allowing it to collect rent while franchisees do the hard work of running restaurants.
The sector is also facing secular trends that create headwinds, including a continued shift to online shopping and consumers’ pursuit of healthier lifestyles. I work in Financials and “consumer discretionary” refers to large ticket items such as cars, appliances, electronics, etc. which the general public might purchase when they have surplus cashflow. When the economy is stalled and interest rates are high there is a notable drop in the consumer discretionary sector. Consumer discretionary is also used by stock market analysts to guage which way the economy is moving, along with housing starts (new builds), and employment stats. The “Consumer Discretionary” highlighted on your chart is part of that particular mutual fund investment and is showing you how much of the mutual fund is invested in that sector.
What industries are in the consumer discretionary sector?
Economists use consumer discretionary companies to judge the state of the overall economy. It is just one of several tools economists use to determine how the economy is doing. An investor can use economic indicators to predict if consumer discretionaries will rise or decline in value. The following indicators can also tell you a great deal about the overall state of the economy. Industry performance is a useful gauge of trends in consumer spending. Consumer discretionary industries tend to thrive when people feel confident about income and spending is strong.
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- Add discretionary spending to one of your lists below, or create a new one.
- The fund has about $230 million in assets under management and charges a management fee of 0.50 percent.
This household name in family entertainment has been a staple of U.S. pop culture for generations. The company’s theme parks and animated movies are popular everywhere. Today, the company also owns ABC, ESPN, Pixar, Marvel, Star Wars, a majority stake in Hulu, and a vast array of assets that it acquired from Fox in a 2019 deal. It has increased payments to shareholders each year since the mid-1970s, making the company a Dividend Kings. With a payout ratio of around 60% of earnings, McDonald’s can comfortably maintain its dividend.
Diversified consumer services
No matter how bad the economy gets, people will still spend money on food because they have to eat something each day. The consumer discretionary sector’s manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and leisure facilities, media production and related services, and consumer retailing and services. In general, when the economy is strong, consumers earn more and spend more on consumer discretionary products. On the other hand, when an economy is contracting, consumers usually earn less and focus their spending more on products essential to their needs. These are known as consumer staples, also referred to as consumer defensive.
SeaWorld Entertainment, Inc. Reports Second Quarter and First Six … – PR Newswire
SeaWorld Entertainment, Inc. Reports Second Quarter and First Six ….
Posted: Tue, 08 Aug 2023 10:30:00 GMT [source]
Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Another big-tent industry group is consumer services, which includes hospitality businesses and various subscription products. Interest rates can be an interesting metric to follow during all types of economic cycles. In general, interest rates rise in growth phases and fall during contractions. The level of interest rates is important for companies that tap the credit markets for business funding.
Consumer Discretionary Select Sector SPDR® Fund (XLY)
However, these companies can be more sensitive to changes in the economy, especially if people hold back or postpone unnecessary purchases. ProShares has created an ETF that tracks global public companies delivering pet food, veterinary services, and other products for pet parents. The fund has about $230 million in assets under management and consumer discretionary meaning charges a management fee of 0.50 percent. Some of its biggest holdings include Freshpet (FRPT), Trupanion (TRUP), and Petco Health and Wellness (WOOF). You can also buy a wide variety of consumer discretionary stocks at the same time through an ETF. This is often cheaper — both in dollars and in research time — than buying individual stocks.
For instance, consider the global pandemic when people were not traveling. With the increase in demand, many consumer discretionary stocks like Home Depot (HD) and Lowe’s (LOW) rose in value. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.
And since consumers typically purchase non-essential goods when they have discretionary income, anything else that threatens that income, such as lower wages or increasing prices, may also affect stock values. The diversified consumer services industry includes companies that provide services, such as education, home security, legal advice, interior design, and consumer auctions. These companies typically provide specialized services that are not classified elsewhere.
New cars, restaurant meals and luxury clothes are all examples of discretionary products. During an economic contraction, people cut back on non-essential items. This is because they do not have enough disposable income to afford these products.
McDonald’s has come a long way from its heyday in the mid-20th century, and the fast-food colossus has worked hard to keep up with the times. The coffee company plays a major role in how a large part of the world’s population starts its day. By introducing the European café concept to the U.S., Starbucks tapped into consumers’ urge to treat themselves to affordable luxuries, and its premium beverages now have a loyal following the world over.
Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. There are several ETFs that track the entire consumer discretionary sector, and there are also several that track specific consumer discretionary subindustries, like retail or video games. Buying several individual stocks can be costly — both in terms of share prices, and in terms of the time you should spend researching those stocks. The leisure products industry is made up of companies that sell nonconsumable goods that are used for fun. Camping equipment companies such as Camping World (CWH) would fit into this category. Below is a list of the five best-performing consumer discretionary stocks in the S&P 500 index, ordered by one-year returns.
