While these forces are worrisome, it’s also the case that there has never been a global recession without a US recession and US data is generally trending in the right direction. Second-quarter real GDP rose at a 3.9% annual growth rate, surpassing estimates for a 3.7% rise. Consumption was the largest contributor, accounting for 2.4% of the 3.9% growth.1
For investors who are cautiously optimistic and want to use some of the cash they’ve been holding on the sidelines, consumer discretionary stocks may represent a pocket of opportunity. We are witnessing a consumer-led economic recovery as recent data, including household spending, paints the picture of a resilient US consumer. This means consumers may have ample spending power heading into the year-end holiday shopping season.
Within consumer discretionary, US homebuilders stand to benefit from a robust consumer profile and a domestically-oriented revenue stream that is somewhat insulated from a rising US dollar.
While earnings season is still in the early stages, initial results have been positive for discretionary stocks. So far, consumer discretionary companies have reported a 21.8% year-over-year increase in quarterly earnings, beating estimates by 10.0%, with expected earnings of 11.8% (including those that have not yet reported). That is the largest surprise rate among all S&P 500® sectors that have reported results.2
The remainder of the fourth quarter could be marked by continued volatility and persistent speculation over the fate of rates. However, it’s encouraging to see investors showing signs of cautious optimism in this time of limbo. At State Street Global Advisors, we believe pockets of opportunity will continue to emerge that investors can use to navigate today’s macro-driven market.
1Bureau of Economic Analysis, as of 9/25/2015
2RBC Capital Markets, as of 10/26/2015