What is Consumer Discretionary?
Consumer discretionary is a sector within the market occupied by companies which produce nonessential goods and services. Movement in this area is tracked along with other economic indicators to make statements about the general health of the economy; unsurprisingly, when the economy is doing poorly, consumer discretionary companies do poorly as well because people have less disposable income to spend on nonessential purchases. Many companies which provide information about market performance offer graphs and charts which track consumer discretionary companies.
Some examples of products and services which are considered part of the consumer discretionary market include luxury goods, resorts, hotels, media, retailers, apparel, the automotive industry, and restaurants. Within this sector, there can be a great deal of variance, ranging from luxury resorts in vacation destinations to companies which make low-cost clothing purchased by low income people. By contrast, companies which produce food and pharmaceutical products are not classified as consumer discretionary because people rely on those products and their purchases are necessary.
In addition to being a market sector, consumer discretionary can also be an area of investment. People who wish to invest in companies which fall under this category can construct their own portfolios and weight them with companies which sell nonessential goods and services. They can also opt to invest in funds which invest in consumer discretionary companies. One advantage to investing in a fund is that it can give people access to more investment diversification because the fund has more money to work with than most single investors would have available.
Several notable companies offer consumer discretionary investment funds and information on the performance of such funds can be obtained from these companies and also through publications which review performance of funds and other investment options. It can be helpful to compare market performance to fund performance to see if fund managers are capable of managing a fund wisely during periods of economic struggle, returning an investment instead of losing money even when times are difficult.
A number of things can cause movement in the consumer discretionary sector and investors need to be alert to warning signs. Economic downturns are certainly one example. Changes in government regulations can be another. For example, companies may experience changes in their stock value as a result of perceived government scrutiny or lack thereof. Large recalls and other industry-wide trends in areas such as the car industry can also cause changes in stock values.
@robbie21 - When a company's major product goes out of style, sure, its stock price drops. But not everything in this stock industry sector is a fad, for one thing; think of hotels and restaurants.
And a solid company will find a way back even after the market cools. Guess, for instance, has had a bit of a comeback and has also gone after markets in Europe and Japan.
This stock sector doesn't really appeal to me. It seems like it would be not only too vulnerable to economic downturns, but also too vulnerable to the vagaries of fashion. I'm thinking back on all the fads that have come and gone during my lifetime, like Guess jeans and BK shoes. (You can tell I stopped paying attention early!)
Am I wrong? Are there reasons why this market sector is less volatile than I would have thought?
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