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Consumer Discretionary
| The Consumer Discretionary Sector encompasses those industries that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services. |
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Actual market weightings for each sector are based on the S&P 1500.
**The Market Analysis, Research and Education (MARE) group is a unit of Fidelity Management & Research LLC.
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Sector Commentary from Standard & Poor's
11/15/2009
S&P recommends marketweighting the S&P 500 Consumer Discretionary sector. Year to date through October 23, the sector index, which represented 9.2% of the S&P 500 Index, was up 31.1% compared with a 19.5% rise for the S&P 500. In 2008, this sector index fell 34.7% versus a 38.5% decline for the 500. There are 33 sub-industry indices in this sector, with Movies & Entertainment being the largest, at 15.4% of the sector's market value.
S&P analysts' fundamental outlook on the Consumer Discretionary sector is neutral. S&P Economics forecasts U.S. real GDP will rebound to 1.8% growth in 2010 from an estimated 2.7% decline in 2009. In addition, S&P Economics forecasts consumer spending will increase 1.2% in 2010 from a projected decline of 0.7% in 2009. Sector earnings are expected to rise 58% in 2010, following a projected 65% increase in 2009. The sector's P/E of 16.2X on estimated 2010 EPS is above the S&P 500's projected P/E of 14.6X. Its P/E to projected five-year EPS growth rate of 1.5X is in line with the broader market's average of 1.5X. The sector's marketweighted STARS average of 3.1 (out of 5.0) is below the average of 3.7 for the S&P 500.
The S&P GICS Consumer Discretionary Index remains in a strong uptrend, but is quickly approaching what could be formidable chart resistance up in the 230 zone. This chart resistance is from the pivot lows in January and March 2008, and it is thick, in our view. Once prices reach this area, the sector may have to go through an extended period of consolidation, as it attempts to chew through all this overhead supply. If the sector does correct, we believe there are many pieces of technical support in the 200 to 220 zone. The relative strength line versus the S&P 500 continues to drift sideways, but remains in an uptrend off its November lows. Our technical opinion on the Consumer Discretionary sector remains neutral.
In summary, we recommend a marketweight exposure to the Consumer Discretionary sector. Although this highly cyclical sector should benefit from a gradual economic recovery, we believe lingering uncertainty regarding the slope of the recovery trajectory will preclude further outperformance.