Skip to Content
Quarter-End Insights

Consumer Cyclical: Solid Economic Fundamentals Drive Discretionary Spending

Companies offering experience, specialization, and convenience continue to take share of consumers' wallets.

Mentioned: , , , , , , , , ,
  • Consumer cyclical sector valuations remain slightly elevated, with a weighted average price/fair value ratio of 1.05, in line with last quarter's valuation. We attribute this to healthy consumer sentiment, low unemployment rates, and stable asset market valuations.
  • We've long held the belief that those companies that offer a combination of experience, specialization, and convenience are best positioned to defend their competitive advantages in an increasingly e-commerce world. While concerns about potential disruption from businesses like (AMZN) linger across many consumer companies, we believe there are certain categories that are better positioned, embracing the aforementioned qualities.
  • We continue to have a favorable view of the travel and leisure space, and the increasing share of wallet companies in these categories are capturing. As consumers continue to migrate to experiences over things, subindustries like cruising and lodging should benefit.
  • Other consumer product companies that have shown a willingness to invest in convenience, ease of use, and experience--Airbnb and Uber come to mind--continue to grab at market share gains across their user base.

The market continues to favor consumer cyclical names, with the group continuing to trade at a weighted average price/fair value of 1.05, the same ratio the group traded at last quarter. We continue to attribute the bullish market sentiment to a number of factors, including healthy consumer sentiment in the U.S. and many other developed nations, low unemployment rates and wage increases that are helping drive middle-class consumption globally, and equity and housing market conditions that have been conducive to wealth effect spending.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.