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Consumer Discretionary Sector Rating: Marketperform

What is the consumer discretionary sector?

It includes automotive, household durable goods, leisure equipment, textiles and apparel, hotels, restaurants, and consumer retailing and services.

Consumer discretionary is—unsurprisingly—one of the more cyclical sectors. As the name implies, it’s dominated by companies that produce products and services that consumers often do without when they are under financial stress or worried about their job security, such as new clothes, new cars or entertainment. The sector has a number of industries with a high degree of exposure to the COVID-19 business shutdowns and shelter-in-place orders that have been under sharp pressure—particularly the hotels & leisure, autos & auto components, and apparel industries. However, those industries are counterweighted by the internet retail industry—Amazon, in particular—which constitutes more than 40% of the sector’s market cap. 

The fundamentals for many of the companies in the sector remain challenged, but beaten-down earnings and sales expectations have begun to turn significantly higher. The renewed spike in new COVID-19 cases and uncertainty regarding any enduring change in social distancing could fundamentally impact consumer products and services over the long term, but the areas of home improvement and online shopping have strong structural tailwinds.

The valuation factors we assess are negative for the sector, as an average of multiple indicators ranks Consumer Discretionary near the bottom of the pack. Much of this can be attributed, once again, to the internet retailers—but also due to the low earnings expectations for other hard-hit areas of the sector. However, given the massive dislocations in the economy, these factors may be of little use, and valuing high growth stocks is quite difficult.

Despite the recent sharp pullback in those industries most affected by COVID-19, the overall sector continues to outperform the market, due to strong gains in the e-commerce space. While relative strength remains positive, excessive optimism along with the potential that the sector leaders have become overbought argues against chasing the market. We currently maintain a marketperform rating for the Consumer Discretionary sector.

Sector Overview: Consumer Discretionary 

2 consumer discretionary mini table

Note: Each of the sector lenses shown above—Macroeconomic, Value, Fundamental and Relative Strength—is both intuitive and evidenced-based in nature. Within each, there are a varying number of factors. The Macroeconomic lens includes sector sensitivities to interest rates, stocks and the value of the U.S. dollar; the outlook for each of these is determined by the Schwab Center for Financial Research (SCFR)’s Asset Allocation Working Group, which uses a mosaic approach of quantitative and qualitative considerations. Value includes six different valuation metrics that provide a holistic perspective on current valuations relative to each of the sectors’ own historical valuations, as well as relative to the other sectors. Fundamental provides insight as to how efficiently the companies within each sector use invested capital to produce earnings; this historically has been informative as to future relative performance of the sectors. Finally, Relative Strength measures momentum of the individual sectors against all of the other sectors. We also consider the data in the context of factors outside the scope of these indicators—for example, geopolitical risk or central bank policy changes.  

Source: Charles Schwab, as of 10/15/2020

What do the ratings mean?

The sectors we analyze are from the widely recognized Global Industry Classification Standard (GICS®) groupings. After a review of risks and opportunities, we give each stock sector one of the following ratings:

  • Outperform: likely to perform better than the broader stock market*
  • Underperform: likely to perform worse than the broader stock market
  • Marketperform: likely to track the broader stock market


Want to learn more about a specific sector?  Click on a link below for more information or visit Schwab Sector Views to see how they compare. Clients can log in to see our top-rated stocks in the Consumer Discretionary sector.


* As represented by the S&P 500 index

Communication Services Industrials
Consumer Staples Information Technology
Energy Materials
Financials Real Estate
Health Care Utilities


What You Can Do Next

Financials Sector Rating: Outperform
Industrials Sector Rating: Marketperform

Important Disclosures

Schwab Sector Views do not represent a personalized recommendation of a particular investment strategy to you. You should not buy or sell an investment without first considering whether it is appropriate for you and your portfolio. Additionally, you should review and consider any recent market news. Supporting documentation for any claims or statistical information is available upon request.

All expressions of opinion are subject to change without notice in reaction to shifting market or other conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.

All corporate names are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.


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