Consumer Stocks Stop Reflating as Streak of Down Days Hits Seven

  • Discretionary stocks in S&P 500 on seven-day streak of losses
  • Wall Street strategists question impact of new Trump policies

It’s been a stock market reality check for anyone who perceives macro euphoria in every government report.

Even as U.S. economic indicators beat forecasts at the highest rate in 29 months, consumer discretionary stocks in the S&P 500 Index are failing to provide follow-through, falling Monday for a seventh consecutive day. The skid is occurring even after employers just added the most workers in four months.

The retreat has been steady but slow, with no daily decline in the S&P 500 Consumer Discretionary Index eclipsing 0.3 percent over the stretch. Still, it’s a sign of economic skepticism as measures of consumer expectations ease off peaks that followed the election of President Donald Trump.

Charles Himmelburg, the chief credit strategist at Goldman Sachs Group Inc., wrote Monday that the best-performing U.S. equities since the election will have to wait before benefiting from initiatives like tax reform and infrastructure spending.

The industry doesn’t inspire much confidence from a profit growth perspective. Companies are expected to finish fourth-quarter earnings season with 1.4 percent profit contraction, lagging the overall forecast of 5.4 percent growth for the whole S&P 500. While the sector is expected to see earnings expansion for the full year 2017, it’s less than half that of the benchmark.

The discretionary space’s strength since the election -- still up 7.3 percent even amid the seven-day slide -- is masking deeper losses in single stocks. As of Monday, 10 of the 12 worst performers in the entire S&P 500 since Nov. 8 are discretionary stocks. Companies from Under Armour Inc. to Ralph Lauren Corp. and Urban Outfitters Inc. are down more than 20 percent over the period.

Here are some options statistics on an ETF tracking consumer discretionary shares in the S&P 500:

  • Short interest as a percentage of shares outstanding is 0.84%; measure fell to 0.73% on Jan. 30, the lowest on record
  • Premium paid to protect against a 10% decline in the ETF over 3 months fell to the lowest since April 2015 on Feb. 2, relative to price paid to bet on 10% gain
  • Put/call open interest ratio on ETF at 2.12 times, down from a more than 2-year high reached Dec. 16; measure’s 3-year average is 1.46 times
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