Why investors should look at consumer discretionary stocks

00:00 Speaker A

great to have you here with us. You’re watching consumer discretionary in that sector. You say it’s an attractive play for patient investors right now. How patient do I need to be?

00:09 James

Well, uh, I mean not not too patient. Uh, you know, we’ve seen that the sector really underperform this year. It’s been, you know, down on an equal weight basis and, you know, really due to concerns about consumer spending and where the economy’s coming in. I think that started in January when we had a very weak consumer data, but we do expect it to to to, uh, improve from here. And so there’s just been, uh, kind of an avoidance of the sector, a lot of selling. So we’re seeing much cheaper valuations. Uh, you know, there could be some more volatility ahead, but we think investors that have, you know, are looking out over the course of the year can can find some pretty good, uh, values now in, uh, stocks across the, you know, the the consumer space, whether it’s in retail or apparel, uh, some of the leisure stocks and so forth.

00:59 Speaker A

And so, as we’re thinking about all this, James, and and one of the major things that investors have been navigating with the most recent volatility is just what’s the real play out of these reciprocal tariffs could look like. How are you factoring that into your own investment strategy and and thesis right now?

01:16 James

Well, you know, that the threat of tariffs has really, uh, weighed on consumer confidence. I mean, so we’ve seen the confidence come in weak and where that really rolled over was when we saw the the impact of the tariffs on the import data from January and so the the GDP trackers kind of kind of turned negative. Uh, and so, you know, it it’s a it’s a risk to the market that the tariffs, uh, will will weigh heavily and cause some disruptions to the supply chain. We’re still in the camp that, you know, there’s trade negotiations ahead. Uh, we think there’s going to be a mix of some tariffs sticking and then some tariffs being being, uh, you know, relegated to, uh, some kind of a trade deal. So we know that the president wants to see investment in the US, wants to see markets opened up to US companies a little bit more. So we think that, you know, this is a key week leading into the tariff announcement next week that if we are going to see some trade deals, we’d like to see some of them happen before those tariffs get announced.

02:32 Speaker A

Yeah, certainly. And so, as you were running through some of the areas of consumer discretionary and what makes that trade, it also comes back to what we’re seeing right now with consumer confidence too and where there is some some impacts, some some, you know, cracks and how consumers are thinking about the overall vibe right now, and especially as it comes back to the employment data as well and those prospects. So, as you’re continuing to get future economic data readings, what is the core economic data reading that you’re looking to to give even further of evidence of how the consumers thinking right now?

03:20 James

Well, certainly the labor data is is going to be key. You know, we’ve got we’ll have jobs reports coming out next week. Uh, you know, there’s some concern that maybe some of the government layoffs will start to hit, uh, the headline jobs data. So we’ll be looking below the line a little bit to see kind of how jobs growth is going out through the the private economy. Uh, so I think that that’s key in in the analysis. And then also, you know, we’ll we’ll look to the retail sales. I think there’s, you know, still a couple weeks out before we get the, uh, we’ll get the the March retail sales reading. Uh, you know, we’ve we’ve known that the the the low-income consumers been under some pressure over the last, you know, couple of quarters, uh, and it’s been more of the high-income consumers that are generating the spending. You know, I think that’s where the consumer confidence weakness comes into play. When the market was at its lows, we were, you know, a little more concerned about a wealth effect, reverse wealth wealth effect, maybe limiting some of the, you know, higher end spending if and consumers delay those purchases. But now with the market coming off the lows a bit, you know, that maybe that’s less of a concern, but it’s I think it’s really going to be the jobs data that we’ll focus on the most over the next couple of weeks.