Click to enlarge

Source: Merrill Lynch



Here is another one of those things I find perplexing:

I keep hearing that healthcare, utilities and consumer staples are doing well — and that this rotation is usually caused by fear of an economic slowdown.

But what if its something else? Might healthcare be part of a secular move caused by the aging of the baby boomers? Utilities and Staples both have high dividends — might these be an alternative to 10 year Treasuries yielding 1.73 today?

To those people expecting a recession, how can we explain the Consumer Discretionary sector hitting highs?

I don’t have the answers, but my curiosity leads me to these questions.

And the chart above, via MER — showing that Consumer Discretionary sector is in a “secular bull market on both an absolute and relative price basis.  The big breakouts from early 2012 remain intact and the sector achieved new all-time absolute and relative price highs yesterday.”

Merrill notes that “this is a bullish back-drop for the sector and for the US equity market longer-term.”



New absolute & relative highs for Consumer Discretionary
Stephen Suttmeier, Jue Xiong
Merrill Lynch, April 09, 2013

Category: Investing, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Why is S&P500 Consumer Discretionary Hitting Highs?”

  1. wally says:

    Equities in those areas tend to be dividend payers and right now they are seen as the best of both worlds: they pay better than bonds but have upward potential if the equities markets rise.

  2. b_thunder says:

    ” how can we explain the Consumer Discretionary sector hitting highs?”

    My totally anecdotal reason, showing my “own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge” is this:

    In December my co-worker has refinanced for the 3rd time in 4 years.

    2008: 15 years left to pay on the original 30yr loan. some equity in the house
    2008: Refi #1: 30yr fixed to 15yr fixed @ lower rate. still 15 years until payoff
    2011: Refi #2: 15yr to 30yr fixed @ same rate, lower monthly payment. 30 years left until payoff.
    2012: Refi #3: 30yr to 30yr, rolled in credit card debt, took a ton of cash out. 30 years left, no equity left.
    From having sizable equity and 12 years until payoff to virtually zero equity and 30 years until payoff. Both husband and wife will reach full retirement age in 10-12 years…
    Gee, what can go wrong in a few short years… when her husband get furloughed from his gov’t job?

    Also, perhaps only partially relevant for Consumer Discretionary data:

    We call Greenspan “Easy AL”, what are we going to call Bernanke and some of his FOMC acolytes in 5 years?

  3. Frilton Miedman says:

    This chart says it all on consumer buying power –

    Despite consumer debt still at historic highs, unemployment still high, wages still down over ten years, the cost of paying the mortgage & other debt is insanely low.

    If rates start climbing, the party’s over..

    • flakester says:

      Subtract transfer payments out of DPI on that TDSP chart, and the picture changes a lot.

  4. rjambs says:

    Could it have anything to do with the growing income inequality?

  5. Super-Anon says:


    Because the hedge funds have decided it’s the next momo target.

    Plus it creates the appearance of an improving consumer.

    The lie gives birth the the truth… for a time.

  6. slowkarma says:

    Those are good questions, and I think all your possible answers (a move to “safety,” the idea that healthcare will do well with the aging of the boomers, a search for safe returns, etc.) may be operating here. More interesting to me is the question of how close we are to a top, forgetting all the ins-and-outs and details. Is it likely that we could go up another 10% before we see a correction? I sort of don’t think so — that would see the Dow to 1600. And if we’re not going to get another 10% before we get a 20% or 25% down (which you pointed out a few days ago we tend to get every four or five years), then maybe it’s time to think about cash. The question that goes with that is, how many people are sitting at their computers with their fingers on the trigger, so that if there’s a viral perception that the correction has begun, we get a crash instead of a downtrend?

  7. Concerned Neighbour says:

    Because whatever world central banks say goes when they’re willing to print huge sums of money in perpetuity. As I’ve been arguing for a while now this kind of analysis is no longer relevant – nor necesary – because central banks have completely killed price discovery (good news is good news, bad news is good news, infinite QE is never priced in, etc.).

    Consumer discretionary stocks are high because all that QE has to go somewhere.

    • Angryman1 says:

      That small amount of “QE” isn’t going anywhere. Posts like these devalue the board.

  8. constantnormal says:

    I’m with b_thunder on this — cheap loans are floating a lotta boats in this economy, not just bankster yachts … how well does consumer credit correlate to this?

    This is, of course, a less-than-desirable result, unless jobs are plentiful and middle-class incomes rising … unless those things happen, we are working our way merrily toward the next Day of Reckoning …

    But I’m not gonna fault those who are opting to dip into the cheap credit well, after having watched the banksters and financial industry wallow in it these past few years …

    • Frilton Miedman says:

      Not so much cheap loans, as lower payments on existing loans & mortgages, FRED data shows consumer debt is down, while cost to service that debt is at 1982 levels.

      What concerns me, knowing what happened to oil in the Summer of ’08 that caused disposable incomes to disappear at the high of a credit bubble courtesy of TBTF’s manipulating oil prices ridiculously high while being short CDO’s – what happens if rates soar now?

      Recalling this BR blog – – knowing the bulk of these derivatives is fixed income….

      • mitchn says:

        The U.S. is producing more oil than it has in thirty years. We won’t see a spike of the kind we saw in ’08.

      • Frilton Miedman says:

        It shouldn’t have happened in ’08 either, supply was up, demand was down, so much that the Pentagon investigated possible economic terrorism and concluded oil pricing was potentially used to intentionally constrict disposable incomes to enhance the market collapse..

        Later, Bernie Sanders “leaked” confidential CFTC records showing it was GS and MS who owned all those futures, even the Pentagon didn’t have that info.

  9. haifadude says:

    Here’s another potential explanation I havent’t seen anywhere: low-beta valuation.

    Many papers have recently pointed out that low-beta/low-volatility stocks are undervalued given their lower volatility. There are already many new ETFs trying to exploit that. It is only natural that the market values such stocks higher as a result (e.g. consumer staples, utilities, etc.), and on the other hand lowers the valuation of the more volatile stocks (materials, technology, etc.).

    What do you think?

  10. Angryman1 says:

    The economy is booming in my neck of the woods. Very little surprise.

  11. ashpelham2 says:

    Some great answers here, and some of them are probably nailing down the answer exactly. Still looks like signs of a race to the bottom for me. What do I mean “race to the bottom”? For many, there won’t be pay increases, or job advancement, or anything like that at all. The only means of coming into new money or lowering their overhead is refinance. And these are done purely to meet the essentials, not to plan a trip to Tahiti. When, or IF, rates start to climb, we will effectively kill the country.

    We are addicted to ZIRP. Married to it. We cannot be weaned off of it. Like I’ve said here before, it’s the cost of energy that is now our buffer against inflation. Not interest rates. Economy gets going too “good”, energy prices will shoot up, slowing it all back down again. Interest rates stay at zero.

    • mitchn says:

      My prediction: ZIRP will be the policy, here and in most of the developed world, for another ten years as the bulk of the baby boom generation is nudged/pushed/shoved into retirement (not necessarily the one it wanted, but better than the poor farm and one last storming of the barricades).

  12. Robert M says:

    I don’t have the empirical data to back this thought. Overseas buying in the rest of the world. Look how Tiffany’s and a couple of other luxury goods companies swoon every time there is talk about the PRC slowing down. In the case of these goods stores it is also prestige in every day use.

  13. PeterR says:

    XLY is leading SPX higher, possibly to 1700 IMO.

    The “Real Options Week” short squeeze is loading fuel (one week before Options Week).

    If SPX breaks out above recent highs, all bets are off.

    Don’t fight the tape!

    And, as TheNewNormal said above, don’t over-think this. With Europe a mess, and Fukushima possibly about to melt down, where else is the world going to go for Big Money safety (relatively speaking!)?

  14. Jim67545 says:

    Consumer debt for cars, furniture, etc. is 1. relatively high interest rate, 2. short term (<72 months on average), 3. subject to no underwriting spoiler such as the GSEs, 4. subject to far less regulatory oversight and disclosure requirements than mortgages, 5. in some cases (auto, RV and boat loans) lower delinquency rates than mortgages, 6. in the event of default the merchandise can be quickly and simply seized with almost nothing akin to foreclosure procedures and 7. if credit is offered through a retailer or manufacturer certain guarantees and prepayments can be negotiated. So, naturally, all the predatory and fraudulent funding that so distorted the mortgage market, would flow here. What's not to love?

  15. flakester says:

    “To those people expecting a recession, how can we explain the Consumer Discretionary sector hitting highs?”

    Not a surprise.
    It happened before the last recession. It hit a high before the one before that too.
    There are other reasons too.
    Yes I do know about small sample issues.