foxex: Consumer Discretion Inspires Investors Buying Stocks Like Shopify and Activision

Wednesday, August 28, 2019

Consumer Discretion Inspires Investors Buying Stocks Like Shopify and Activision

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, August 28, 2019

1. Consumer Discretionary Sector Paces S&P 500 Despite Nervous Investors

2. Millennial Consumers Inspire Investors to Buy Companies that Provide Experiences

3. Home Improvement Stores Benefiting from Falling Mortgage Rates

Market Moves

U.S. Markets closed with a tepid rebound following Tuesdays quiet selloff. Though market indexes were mildly higher, it is interesting to note some of the more subtle characteristics driving this market currently. For example it seems that the Millennial generation is playing a role to influence both consumer and investor behavior.

Millennial consumers, it is said among the advertising industry crowd, favor experiences over products. Perhaps it is no surprise that companies that respond to this preference are showing above average returns nowadays.

Consider that the consumer discretionary sector (as tracked by the State Street ETF with ticker symbol XLY), has outperformed the S&P 500 so far in 2019. This is not insignificant for two reasons, the first is that market volatility has shown that nervousness among investors remains high. The second is that XLY is maintaining its lead over the S&P 500 even during this time when stocks have pulled back to previous levels (see chart below).

Millennial Consumers Inspire Investors to Buy Companies that Provide Experiences

Among stocks within the consumer discretionary sector, those that are doing well tend to be companies that provide experience-based products and services, or at least those that are marketed in such a way as to make their products experiential in nature. It could be something as simple as Starbucks' (SBUX) way of helping customers gain the experience of personalized service with every visit. More recently Activision's (ATVI) immersive update of its flagship product, World of Warcraft, hit the company's bottom line in a big way. Snapchat (SNAP) also may have found how to monetize the delivery of an ephemeral moment by partnering with Target (TGT). Even Shopify (SHOP) powering the digital commerce behind these enterprises is showing strength.

The common theme between all these companies seems to be a shift in their emphasis towards enabling consumers to have meaningful experiences. Should the market rebound, these stocks might be ones for investors to watch.

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Home Improvement Stores Benefiting from Falling Mortgage Rates

The fall in the yields on the 10-year bond index (TNX) is driving mortgage rates lower. No surprise then that the home building industry is benefiting from the shift. What may not be apparent yet is that home building stocks have yet to reap a significant rise in earnings just yet. The stocks that have done well so far are those companies that sell home improvements, appliances or other furnishings. Companies like Williams-Sonoma (WSM), Home Depot (HD), Lowe's (LOW), Owens Corning (OC), and Johnson Controls (JCI) are all showing strength. Could homebuilder stocks be far behind?

The Bottom Line

U.S. stocks rebounded mildly with key stocks higher on special circumstances. Millennial investors and consumers alike seem to favor stocks that provide experiences. It remains to be seen whether the experience of buying a house on lower rates will be attractive enough to lure the Millennial generation into home buying later this fall.

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