Consumer stocks are falling out of favor with US investors.
While the benchmark S&P 500 (^GSPC) is trading at record highs and up nearly 10% year to date, the Consumer Discretionary (XLY) sector, often viewed as a bellwether for household health, is trailing far behind.
The sector is up a modest 0.3% this year, making it second-worst-performing sector in the S&P 500 this year, ahead of only Health Care (XLV).
High interest rates, shifting spending patterns, and economic uncertainty have weighed heavily on the group, which houses recognizable names like Nike (NKE), Target (TGT), and Home Depot (HD), as well as Magnificent Seven giants Tesla (TSLA) and Amazon (AMZN).
“I still think that we have a bit of a K-shaped economy,” Charles Schwab’s Liz Ann Sonders told Yahoo Finance on Wednesday, pointing to the growing disparity between high- and low-income households.
“You’re seeing it in a lot of the travel-related stocks with concerns particularly around lower-end income consumers. … It’s the haves and have-nots, both at the consumer level and the stock level.”
This week’s earnings added fresh weight to that thesis.
Chipotle (CMG) shares sank double digits after the company reported a larger-than-expected drop in same-store sales and traffic, slashing its full-year outlook.
Hilton (HLT) also fell after reporting a decline in US room revenue that weighed on sentiment, and Hasbro (HAS) slid after warning of continued promotional pressure and delaying product rollouts due to consumer price sensitivity.
Eric Freedman, chief investment officer at US Bank Asset Management Group, said the recent moves reflect a bifurcated consumer landscape and that companies catering to more price-sensitive shoppers will need to work harder to capture demand.
“This is a hyper-promotional environment to get people, especially lower-income and lower-middle-income consumers, to spend money,” he told Yahoo Finance. “You have to be out with deals.”
Airlines, which are housed in the Industrials sector but have significant consumer exposure, have also suggested a softer spending environment in recent reports.
American Airlines (AAL) stock fell after CEO Robert Isom echoed the weakness seen by peer Southwest (LUV), citing softer domestic travel demand last quarter. “Let’s face it, the domestic network has been under stress because of the uncertainty in the economy and the reluctance of domestic passengers to get in the game,” Isom said on Thursday.
Meanwhile, companies catering to wealthier consumers have held up far better.
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