What Are Consumer Cyclicals?

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. There are several economic indicators that help economists to determine the state of an economy. These indicators are also important for predicting trends for the consumer discretionary and consumer staples sectors. The automobile industry designs, produces, and markets cars, trucks, buses, and other types of vehicles.

Because ETFs trade like stocks at current market prices, shareholders may pay more than a fund’s NAV when purchasing fund shares and may receive less than a fund’s NAV when selling fund shares. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. When the economy is doing well and money is flowing, people are willing to spend $4 to $6 for a coffee. When the economy turns and people have to be more frugal, they’re more likely to make coffee at home. 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.

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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. The Fund’s investments are subject to changes in general economic conditions, general market fluctuations and the risks inherent in investment in securities markets.

The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. While market timing isn’t the only part of consumer cyclical analysis, buying cyclical stocks means the investor is betting that the market will trend upward indefinitely. Consumer cyclicals, or companies in the consumer discretionary sector of the economy, make items that are not considered necessities. 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 charges a management fee of 0.50 percent. Some of its biggest holdings include Freshpet (FRPT), Trupanion (TRUP), and Petco Health and Wellness (WOOF).

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Both product classifications are influenced by cycles of the economy. The specialty retail industry includes retail companies that specialize in selling specific categories of goods to consumers, such as apparel, electronics, home improvement, automotive retail, and home furnishings. Companies within the industry typically import or buy goods from manufacturers and then resell them through their own networks of dealers and distributors. However, certain distributing companies may have their own manufacturing facilities. While consumer spending data has cooled, the retail consumer still remains relatively resilient — especially when it comes to higher-end, discretionary items that have strong brand recognition.

The Fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies and markets. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, or other events could have a significant impact on the Fund and its investments. But like any other type of investment, it can be challenging to pick winners in the space. Alternatively, investors hedge their bets and look for exchange-traded funds or ETFs.

Risks of Investing in Consumer Discretionary Stocks

Investors follow many indicators to determine the value of consumer discretionaries. They may look at unemployment levels, home sales, retail sales, building construction activity and non-farm payrolls. Labor market hours, manufacturing activity, earnings and service activity also play a role. Economists use consumer discretionary companies to judge the state of the overall economy.

So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our consumer discretionary meaning 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.

Understanding Consumer Discretionary

To help you choose the best consumer discretionary stocks for your portfolio, Forbes Advisor has profiled the 10 largest in the industry by market capitalization. The products and services described on this web site are intended to be made available only to persons in the United States or as otherwise qualified and permissible under local law. From sit-down restaurants like Texas Roadhouse (TXRH) to hotel operators such as Hilton (HLT), these brands have a tight grip on consumer spending. They include cruise operators, resorts and casinos, and many others. Bankrate.com is an independent, advertising-supported publisher and comparison service.

• The hotels, restaurants, and leisure industry comprises companies that operate hotels, fast food restaurants, resorts, casinos, and cruises.
• 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.
• New cars, restaurant meals and luxury clothes are all examples of 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.

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. Household goods, food items, hygiene products, alcohol, tobacco and beverages are all examples of consumer staples. Because these items are considered essential, they are impervious to economic fluctuations. No matter how bad the economy gets, people will still spend money on food because they have to eat something each day.