In just about any economic discussion you read or listen to these days, there’s one recurring theme- the strong consumer is picking up the slack.  Strong consumer sentiment and generational lows in the unemployment rate are just two of many examples.  A search of the term “strong consumer” on Google Trends also illustrates the strength of the consumer. While there’s still another nine days left in the month, searches for the term “strong consumer” in November are on pace to be the highest in at least a year.

So, we all agree that the consumer is strong.  Right?  Well, recently the market begs to differ.  The chart below shows the relative strength of the S&P 500 Consumer Discretionary sector versus the S&P 500 over the last year.  When the line is rising, it indicates that the Consumer Discretionary sector is outperforming the S&P 500.  However, when the line is falling it indicates that the Consumer Discretionary sector is underperforming, and underperforming is what the sector is doing now…in a big way.  Even as the S&P 500 is up around 4% in the last month, the Consumer Discretionary sector is down 1%.  While many traditional brick and mortar retailers that have fallen on hard times are in the sector because these stocks are already down so much, their weighting in the index has become very small. Meanwhile, stocks that have previously been big winners like Amazon.com (AMZN), Home Depot (HD), and McDonald’s (MCD) are the sector’s largest components.  Does the market know something we don’t? Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

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