Consumer Discretionary Sector Definition

It plans to expand to more than 6,000 stores globally, up from about 4,500 today. 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. Nike has built a strong digital ecosystem around apps such as SNKRS and the Nike Training Club, which has buffered much of the impact. Even though revenue growth has been sluggish during the pandemic, the company has delivered solid profits and has outperformed rivals such as Adidas and Under Armour (UAA 0.26%)(UA 0.84%).

When the market is going up, people have money to spend, so cyclicals do well. When it is in decline, budget constraints cause people to spend only on what they need—and cyclicals lose sales. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

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U.S. Sectors & Industries Performance is represented by the S&P 500 GICS® (Global Industry Classification Standard) indices. Examples of specialty retail companies include The Home Depot, Inc. (HD) and Best Buy Company, Inc. (BBY). An example of a household durables company is Tempur Sealy International, Inc. (TPX), which is a manufacturer and distributor of bedding products. Examples of restaurant, hotel, and leisure companies include McDonald’s Corporation (MCD) and Carnival Corporation (CCL), a cruise vacation company. Get Forbes Advisor’s expert insights on investing in a variety of financial instruments, from stocks and bonds to cryptocurrencies and more. Retailers and manufacturers of consumer discretionary goods are particularly exposed to problems from supply chain disruptions.

Other industries within the consumer discretionary sector are household goods, leisure products, and multiline retail. While picking winning stocks can be challenging, there’s a potential for excellent returns over time. Unlike consumer staples companies, which make necessities, consumer discretionary stocks consumer discretionary meaning tend to do well when the economy is strong and poorly when times are tough. Keep reading to learn about the consumer discretionary sector and some top stocks to consider. Consumers will only buy non-essential items when they have enough income left at the end of each month to afford those products.

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However, it’s facing similar challenges to Nike in China as its zero-Covid policy has cooled off sales there. 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. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Companies that provide direct-to-consumer products that, based on consumer purchasing habits, are typically considered nondiscretionary.

The stock shares of consumer discretionary companies tend to lead a general stock market decline at the beginning of a contraction. The consumer confidence indicator can shed light on future consumption and saving behaviors of households. This insight is tied to answers households provide when surveyed about their expected financial circumstances. It’s also based on how they feel about economic conditions and unemployment. These consumers, however, still need to buy consumer staples—such essential and basic household items as toilet paper, paper towels, food, beverages, and gas. A growing economy—expansion to peak—is usually characterized by stronger earnings for businesses and consumers.

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Unlike consumer discretionary goods, consumer staples products, such as food, beverages, and tobacco, are goods that consumers tend to buy regardless of where the economy is in its business cycle. When the economy is expanding, consumer discretionary stocks tend to see strong gains. They are what’s called cyclical stocks because they are directly dependent on economic cycles and consumer confidence. During good economic times, consumers are ready to spend on discretionary items. An example of this phenomenon is seen in the volatile returns of consumer discretionary stocks during most of 2020 and 2021. When the COVID-19 pandemic started and the market initially crashed, consumer cyclicals did poorly.

Stocks in the sector generally posted increased share prices and looked overvalued after a year and a half, but they did not have quite the same returns as consumer cyclicals. Below-average profitability and lower sales and profit growth are partially a result of the substantial effect the 2020 global pandemic had on the travel-related industries within the consumer discretionary sector. There are multiple industries under the consumer discretionary sector. These industries are essential for investors because they paint a picture of consumer spending.