Consumer Confidence Leaps to 18-Year High: 5 Big Gainers
Consumers in America are currently most confident in almost two decades, courtesy of a healthy labor market and strong economic outlook. Their assessment of present-day conditions is positive, making them confident of continued economic expansion, at least in the near term.
More the confident consumers are about their well-being, the more will they spend. Thus, things are currently looking up for consumer discretionary companies that are poised to gain on signs of renewed strength in consumer spending.
Consumers in High Spirits
U.S. consumer confidence soared to its highest in 18 years in October, per the Conference Board, a business research organization. The consumer confidence index climbed to 137.9 from 135.3 in September. Economists had expected the consumer index to slip to 134.9 in the month.
Nonetheless, the key economic indicator that measures attitudes on future economic prospects registered its best reading since the fall of 2000 and is not too far from the all-time high of 144.7 reached that year.
(Source: The Conference Board)
People’s confidence in the present situations improved from 169.4 last month to 172.8 this month, matching the highest level reached in December 2000. The future expectations index also moved from 112.5 to 114.6, an 18-year high.
What Drove Confidence?
Household optimism was largely driven by robust labor market, suggesting strong economic expansion in the near future. Lynn Franco, senior director of economic indicators at the Conference Board, said that American’s assessment of present condition has improved, mostly because of solid employment growth. She added that “the expectations index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon, rather, they expect the strong pace of growth to carry over into early 2019.”
The U.S. unemployment rate is currently at a 49-year low of 3.7%, the lowest since December 1969. Meanwhile, the country’s total output of goods and services expanded at an annualized pace of 3.5% in the third quarter. In fact, the economy in the last two quarters recorded the fastest six-month growth in four years and is on track to hit Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession.
Why Does Consumer Confidence Matter?
Such a record consumer confidence number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. More the confidence households generate, the more will they spend. Notably, consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a petty number.
These numbers influence companies’ production schedule, particularly consumer discretionary items. In fact, consumer discretionary items including durable goods, apparel, entertainment and leisure, and automobiles are mostly affected as spending plays a major role in determining revenues.
5 Stocks to Gain From Confident Consumers
Since the aforesaid areas are positioned to benefit from this stellar reading on confidence level, picking stocks from the same will be a smart move. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The stocks also boast a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Columbia Sportswear Company COLM designs, markets, and distributes outdoor and active lifestyle apparel, footwear and accessories. The stock has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 3.2% in the last 60 days. The company’s expected earnings growth rate for the current year is 20.2% compared with the Textile - Apparel industry’s projected rise of 18%.
The Marcus Corporation MCS owns and operates movie theatres, and hotels and resorts. The stock has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 6.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 22.1% compared with the Leisure and Recreation Services industry’s estimated rise of 5%.
Deckers Outdoor Corporation DECK designs, markets, and distributes footwear, apparel, and accessories for casual lifestyle use. The stock has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased almost 5% in the last 60 days. The company’s expected earnings growth rate for the current year is 17.6% compared with the Shoes and Retail Apparel industry’s projected rise of 17.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Monro, Inc. MNRO provides automotive undercar repair, and tire sales and services. The stock has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 0.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 13.9% compared with the Consumer Services - Miscellaneous industry’s projected rise of 8.6%.
Rocky Brands, Inc. RCKY designs, manufactures, and markets footwear and apparel. The stock has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 7.6% in the last 60 days. The company’s expected earnings growth rate for the current year is 57.8% compared with the Shoes and Retail Apparel industry’s estimated rise of 17.1%.
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