The consumer discretionary sector is chock full of luxury. These non-essential goods, products and services carry popular designer names like Michael Kors and Ferrari, and also include restaurants, coffee shops and golf courses. Consumer discretionary stocks soar during a robust economy, but investors should be wary during a downturn — consumers tend to cut this spending first.
What are consumer discretionary stocks?
The consumer discretionary sector is one of 11 sectors of the stock market. These businesses include products and services that consumers may want, but don’t necessarily need. For example, high-end clothing, big-screen televisions, family vacations and sporting goods fall under this category. Consumers usually purchase these non-essential goods or services when they feel confident about their finances and have some disposable income.
What industries does it include?
With products that range from cars to lipstick, the consumer discretionary sector covers a vast range of industries.
Automobiles. Companies that manufacture cars, trucks, motorcycles and scooters.
Hotels, restaurants and leisure. The service industry includes food and drink establishments, lodging and recreational activity venues such as theme parks.
Household durables. Residential products like furniture and appliances.
Multiline retail. Stores that offer diversified products, such as Macy’s.
Textiles, apparel and luxury goods. Manufacturers of clothing, accessories and luxury goods, such as Hermès designer handbags and Givenchy leather shoes.
Leisure products. These vendors of recreational products and equipment include sports gear and toys.
Consumer discretionary stocks vs. consumer staples stocks
Consumer discretionary stocks offer products or services that people enjoy, but can live without. Consumer staples are things we need, such as food, beverages, household essentials and hygiene products like toilet paper. No matter how the economy is doing, you’ll always stock your house with consumer staples. But in a waning economy, you might eliminate the nonessentials.
How to invest in the consumer discretionary sector
There are two ways to invest in the consumer discretionary sector: individual stocks or exchange-traded funds (ETFs). When you invest in a particular consumer discretionary stock, you buy shares of the company. There are fewer fees, but more risk involved. If you go the ETF route, you’ll get a basket of consumer discretionary stocks, which come with higher fees but diversifies your portfolio and lowers your exposure risk. A breakdown of how to get started:
Pick a brokerage. Browse different brokerage platforms to choose a firm that suits your investing needs.
Open an account. Most firms let you open a brokerage account online. Some accounts require a deposit to open, while others let you fund your account right before investing.
Shop for securities. Use your platform’s research programs to examine different stocks and ETFs.
Place an order. Give the order to buy the security.
Track your portfolio. Monitor your investments by logging into your brokerage account.
What stocks are in the consumer discretionary sector?
See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.
Company summary
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of coffee internationally. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee, tea, and other beverages, roasted whole beans and ground coffees, complementary food, packaged coffees, single-serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. The company offers its products under the Starbucks Coffee, Teavana, Seattle's Best Coffee, Ethos, and Starbucks Reserve brands. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington.
NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic and casual footwear, apparel, equipment, accessories, and services for men, women, and kids in North America, Europe, the Middle East, Africa, Greater China, the Asia Pacific, and Latin America. The company offers its products under the NIKE, Jordan, Jumpman, Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. It also provides a line of performance equipment and accessories, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment for sports activities, as well as various plastic products to other manufacturers; distributes and licenses casual sneakers, apparel, and accessories; and markets apparel with licensed college and professional team and league logos. In addition, the company offers consumer services and experiences, including sport focused events and activations; fitness and activity apps; sport, fitness, and wellness content; and digital services and features in retail stores. It sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other wholesale accounts through NIKE-owned retail stores, independent distributors, licensees, sales representatives, and digital platforms. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in May 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.
MGM Resorts International, through its subsidiaries, operates as a gaming and entertainment company in the United States, China, and internationally. It operates through four segments: Las Vegas Strip Resorts, Regional Operations, MGM China, and MGM Digital. The company operates casino resorts that offer gaming, hotel, convention, dining, entertainment, retail, and other resort amenities, as well as online/digital games through its online platforms. Its casino operations include slots and table games, as well as live dealer, online sports betting, and iGaming through BetMGM. The company's customers include premium gaming customers; leisure and wholesale travel customers; business travelers; and group customers, including conventions, trade associations, and small meetings. The company was formerly known as MGM MIRAGE and changed its name to MGM Resorts International in June 2010. MGM Resorts International was incorporated in 1986 and is based in Las Vegas, Nevada.
Carnival Corporation & plc, a cruise company, provides leisure travel services in North America, Australia, Europe, and internationally. The company operates through four segments: North America Cruise Operations, Europe Cruise Operations, Cruise Support, and Tour and Other. It operates port destinations and islands, as well as owns and operates hotels, lodges, glass-domed railcars, and motorcoaches. The company offers its services under the AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland America Line, P&O Cruises (Australia), P&O Cruises (UK), Princess Cruises, and Seabourn brands. It sells its cruises through travel agents, tour operators, vacation planners, websites, and onboard future cruise consultants. Carnival Corporation & plc was founded in 1972 and is headquartered in Miami, Florida.
Aptiv PLC, an industrial technology company, provides hardware and software solutions to support automotive and other industries in North America, Europe, the Middle East, Africa, the Asia Pacific, and South America. It operates through three segments: Advanced Safety and User Experience, Engineered Components, and Electrical Distribution Systems. The company offers active safety, user experience and smart vehicle compute, and software products for vehicle safety and security, including intelligent sensors, compute platforms, and software tools and services. It also provides connection systems, interconnects, and cable management and protection solutions for the distribution of power, signal, and data. Aptiv PLC was incorporated in 2011 and is based in Schaffhausen, Switzerland.
eBay Inc., together with its subsidiaries, operates marketplace platforms that connect buyers and sellers in the United States, the United Kingdom, China, Germany, and internationally. Its marketplace platform includes its online marketplace at ebay.com, off-platform businesses, and the eBay suite of mobile apps. The company's platforms enable users to list, sell, buy, and pay various products. The company was founded in 1995 and is headquartered in San Jose, California.
Amazon.com, Inc. engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, fire tablets, fire TVs, echo, ring, blink, and eero; and develops and produces media content. In addition, the company offers programs that enable sellers to sell their products in its stores; and programs that allow authors, independent publishers, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content. Further, it provides compute, storage, Artificial intelligence, database, analytics, machine learning, and other services, as well as advertising services through programs, such as sponsored ads, display, and video advertising. Additionally, the company offers Amazon Prime, a membership program. The company's products offered through its stores include merchandise and content purchased for resale and products offered by third-party sellers. It serves consumers, sellers, developers, enterprises, content creators, advertisers, and employees. The company was incorporated in 1994 and is headquartered in Seattle, Washington.
Domino's Pizza, Inc. operates as a pizza company worldwide. The company operates through three segments: U.S. Stores, International Franchise, and Supply Chain. It offers pizzas under the Domino's brand name through company-owned and franchised stores. The company also provides bread products, wings, boneless chicken, pastas, oven-baked sandwiches, soft drink products and desserts. In addition, it offers parmesan stuffed crust pizza; spicy chicken bacon ranch specialty pizza; and garlic, and cinnamon bread bites, as well as croissant, chocolate volcano, and chicken burst pizzas. Domino's Pizza, Inc. was founded in 1960 and is based in Ann Arbor, Michigan.
Chipotle Mexican Grill, Inc., together with its subsidiaries, owns and operates Chipotle Mexican Grill restaurants. It sells food and beverages, such as burritos, burrito bowls, quesadillas, tacos, and salads, as well as kids's meals, chips, and sides. It offers Mexican-inspired meals using responsibly sourced meats, such as chicken, beef, and pork branded as Responsibly Raised. The company also provides digital ordering through its website, mobile app, and third-party delivery platforms. It has operations in the United States, Canada, France, Germany, and the United Kingdom. Chipotle Mexican Grill, Inc. was founded in 1993 and is headquartered in Newport Beach, California.
Take-Two Interactive Software, Inc. develops, publishes, and markets interactive entertainment solutions for consumers worldwide. The company develops and publishes action/adventure products under the Grand Theft Auto, LA Noire, Max Payne, Midnight Club, and Red Dead Redemption names, as well as other franchises. It also publishes various entertainment properties across various platforms and a range of genres, such as shooter, action, role-playing, strategy, sports, and family/casual entertainment under the BioShock, Mafia, Sid Meier's Civilization, XCOM series, Borderlands, and Tiny Tina's Wonderland names. In addition, the company publishes sports simulation titles comprising NBA 2K series, a basketball video game; the WWE 2K professional wrestling series; mobile titles, including WWE SuperCard; and PGA TOUR 2K. Further, it offers Kerbal Space Program; free-to-play mobile games, such as CSR Racing, Dragon City, Empires & Puzzles, FarmVille, Game of Thrones: Legends, Golf Rival, Harry Potter: Puzzles & Spells, Match Factory!, Merge Dragons!, Merge Magic!, Monster Legends, Toon Blast, Top Eleven, Top Troops, Toy Blast, Two Dots, Words With Friends, and Zynga Poker; and hyper-casual mobile titles, including Color Block Jam, Fill the Fridge!, Parking Jam 3D, Power Slap, Pull the Pin, Screw Jam, Twisted Tangle, and Tangled Snakes. The company's products are designed for console gaming systems; and mobiles comprising smartphones, tablets, and personal computers. It provides its products through physical retail, digital download, online platforms, and cloud streaming services. Take-Two Interactive Software, Inc. was incorporated in 1993 and is based in New York, New York.
Vista Outdoor Inc. designs, manufactures, and markets outdoor recreation and shooting sports products. in the United States and internationally. The Kinetic Group segment designs, develops, distributes, and manufactures ammunition, primers, and components for hunters, recreational shooters, federal and local law enforcement agencies, and the military. This segment offers centerfire pistol ammunitions, rifle ammunitions, rimfire ammunitions, and shotshell ammunitions for use in training, target shooting, personal protection, hunting, recreational target shooting, waterfowl, and upland game hunting; and ammunition components. The Revelyst Outdoor Performance segment offers fishing, lifestyle and technical apparel, outdoor accessories, outdoor cooking, and performance gear products, such as waders, sportswear, outerwear, footwear and fishing tools and accessories, performance optics, and outdoor accessories and cooking equipment under the Bushnell, Simms Fishing, Camp Chef, Stone Glacier, and Primos, as well as Blackhawk and Eagle brands. The Revelyst Adventure Sports segment provides protective gear and apparel, footwear, hydration, and e-mobility products comprising motocross, mountain biking, cycling, and snow sports protection and accessories, as well as bike hydration packs and water bottles, and e-bikes under the Bell, CamelBak, Fox Racing, Giro, Blackburn, and QuietKat brands. The Revelyst Precision Sports Technology segment offers laser rangefinders, golf audio devices, wrist-worn, and handheld GPS and launch monitors, as well as simulators and performance analysis tools under the Bushnell Golf and Foresight Sports brands. The company sells its products through big-box, e-commerce, specialty, and independent retailers and distributors, as well as directly to consumers through its brands' websites and retail locations. Vista Outdoor Inc. was incorporated in 2014 and is headquartered in Anoka, Minnesota.
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
Why invest in the consumer discretionary sector?
Consumer discretionary stocks have the potential for high returns, especially when the economy is strong. For example, during the start of the longest economic expansion in US history, the S&P 500 Consumer Discretionary Index returned 41.3% in 2009, compared to the S&P 500 Index’s 26.5%. And it continued to bring in consistently higher returns for many years. Another benefit of the consumer discretionary sector is that it’s easier for investors to gauge entry into the market. Since consumer discretionary stocks perform in tandem with the economy, investors can monitor economic indicators, such as the gross domestic product (GDP), to judge whether it might be a good time to start investing.
How are the dividends for consumer discretionary stocks?
Consumer Discretionary stocks dividends are usually comparable to the rest of the market. But economic downfalls can lead to dividend cuts. For example, in September 2019, the SPDR S&P Retail ETF (XRT) had a yield of 1.99%, compared to the S&P 500 Index’s (SPY) 1.97%. But just a few months later, the COVID-19 pandemic forced consumers to stay at home and shut down major retailers, hotels and restaurants. Many stocks plummeted, affecting dividend payouts as well. In June 2020, the SPDR S&P Retail ETF (XRT) had a yield of 0.86%, steeply trailing the S&P 500 Index’s (SPY) dividend of 1.75%.
What unique risks does the consumer discretionary sector face?
Economic cycles have a big hand in how consumer discretionary stocks perform. Since this sector is extremely unpredictable, here are a few things to watch out for:
Weak economy. The sector suffers in a declining economy, especially when there are high rates of unemployment. Consumers tend to tighten their spending and reduce luxury goods from their budget.
High interest rates. Consumers often purchase more expensive products, such as cars or jewelry, on credit. High credit card interest rates are harder on customers and may deter spending.
Poor consumer confidence. How people feel about the economy plays a key role in consumer spending. A positive outlook can lead to more spending, whereas a loss in confidence usually means that consumers are saving rather than spending. For example, when consumer confidence was at an all-time low in 2009 following the Great Recession, all major areas of spending — except healthcare — dropped an average of 2.8%, according to the US Department of Labor.
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The consumer discretionary sector may be a good choice when the economy is growing and consumers feel good about their job and finances. But tread carefully when the economy starts trending down. Compare online trading platforms to find a brokerage firm when you’re reading to start investing.
Frequently asked questions
Is the consumer discretionary sector cyclical? Yes. This sector’s performance is dependent on how the economy is doing. Consumers only spend money on things they don’t necessarily need when they have enough income for necessities. Does a weakening economy affect all consumer discretionary stocks the same way? No. Industries perform differently during economic downturns. For instance, after the Great Recession of 2008, the furniture industry saw a bigger drop than hotels and lodging.
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Kimberly Ellis is a personal finance writer at Finder, specializing in banking and financial literacy. After teaching in public and private schools, Kimberly zeroed in on personal financial education to help families and kids develop lifelong money skills. She hails from New York City, graduating summa cum laude from Queens College with a BA in elementary education and mathematics, as well as a New York State teaching certificate. She’s also an aspiring polyglot, always in a book and forever on the hunt for the perfect classic red lipstick.
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