CONSUMER DISCRETIONARY: Another Concentrated Sector

We recommend a market-weight position in the S&P 500 Consumer Discretionary sector. At first glance, the sector looks strong. Its stock price index is near a record high, forward earnings is rising, and the forward P/E has held in the mid-20s (chart). The surface-level fundamentals are attractive.

Look closer, and the strength narrows. Consumer Discretionary is up just 2.3% ytd, ninth among the 11 S&P 500 sectors. Only the sector’s retail industries are positive so far this year. The rest of its industries are down ytd by various amounts running from Automobile Manufacturers, down 4.4%, to Other Specialty Retail, down 25.7% (chart). A handful of names has carried the index’s performance while most of the sector trades lower.