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US Consumers Most Confident in 13 Years: Top 5 Picks
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American consumers are gaining confidence in the economy. Consumer confidence crushed expectations and soared to the highest level in October since 2004. A decline in gas prices, record low jobless rate and series of highs for the stock market buoyed optimism on household finances and the economy.
The economic expansion, after eight years, is finally noticeable. The U.S. economy has started to expand close to the range expected by President Trump and some other Republicans, while both manufacturing and service sectors accelerated at a record pace last month.
Since Americans gained optimism on the economy, things have been looking up for consumer stocks. Stocks of consumer discretionary companies are poised to grow on the signs of renewed consumer spending strength.
Confidence in American Economy Highest in 13 Years
According to the University of Michigan, the U.S. consumer sentiment index touched 101.1 in October, up from 95.1 in September. The key economic indicator that measure attitudes on future economic prospects reached its highest level since 2004.
Americans think the economic scenario right now is “as good as it gets”. There were big gains in both the index for present economic conditions and consumer expectations. The index for current economic conditions rose to 116.4 from 111.7, while the index of consumer expectations increased to 91.3 from 84.4.
Here’s how all the three major indices performed on a year-over-year (Y-Y) basis:
Indexes
Oct 2017
Oct 2016
Y-Y Change
Index of Consumer Sentiment
101.1
87.2
+15.9%
Current Economic Conditions
116.4
103.2
+12.8%
Index of Consumer Expectations
91.3
76.8
+18.9%
(Source: University of Michigan)
What Drove the Confidence?
Household optimism was largely driven by falling gas prices, labor market health and the U.S. stock market’s record-breaking run. The average price of a gallon dropped by 43 cents over the last five weeks after it had climbed after Hurricane Harvey impacted the Gulf Coast refinery outlets.
A clearer view of last month’s labor market data, in fact, showed that keeping the effects of the hurricane aside, the U.S. employment scenario is continuing to tighten. The unemployment rate declined to 4.2%, the lowest since February 2001 and wages increased 0.5% to an average of $26.55 an hour, per the Labor Department data. In fact, in the last 12 months, hourly pay increased 2.9%, up from 2.7% in the prior month and also in line with a post-recession high.
U.S. stocks, in the meanwhile, continue to extend their winning streak, with the Dow and the S&P 500 rising for five straight weeks. So, what has driven the indices higher? Investors cheered the first step toward enacting major tax reforms later this year after the Republican-controlled U.S. House of Representatives approved a 2018 budget resolution.
The House of Representatives, led by Speaker Paul Ryan, passed a $4.1-trillion budget legislation that paved the way for them to rewrite the much-awaited tax code later this year. The budget aims to repeal Obamacare and also contains $1.1 trillion in non-entitlement outlays, including nearly $622 billion for defense. The far-reaching plan will trim taxes for corporates as well, which will offset the revenue loss and not add to national debt that is now above $20 trillion.
Solid second-quarter earnings also provided a fillip to the U.S. equity market despite political turmoil, both at home and abroad. Meanwhile, a similar shot in the arm is expected in the third-quarter earnings season (read more: Q3 Earnings to Work Magic for Wall Street: Top 5 Picks).
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 big-ticket items like cars, appliances, etc. In fact, the consumer discretionary sector is mostly affected as spending plays a major role in determining revenues. Automobile stocks often track these numbers and so do appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewelry retailers and cruise line operators, to name a few.
5 Stocks to Gain as Consumers Gain Confidence
Since the aforementioned sector is 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). Such stocks also boast of 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.
Guess’, Inc. (GES - Free Report) designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings surged 45% over the last 90 days. The company’s expected growth rate for the current year is 31%. The company has outperformed the industry in the year-to-date period (+29.5% vs -1.5%).
Wynn Resorts, Limited (WYNN - Free Report) develops, owns, and operates destination casino resorts. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 5.5% over the last 90 days. The company’s expected growth rate for the current year is 48.2%. The company has outperformed the industry in the year-to-date period (+64.5% vs +24%).
Malibu Boats Inc (MBUU - Free Report) is a designer, manufacturer and marketer of performance sport boats. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings advanced 2.2% over the last 90 days. The company’s expected growth rate for the current year is 19.4%. The company has outperformed the industry in the year-to-date period (+66% vs +2.7%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lions Gate Entertainment Corp. (LGF.A - Free Report) is engaged in motion picture production and distribution, television programming and syndication, home entertainment and location-based entertainment. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings rose 10.5% over the last 90 days. The company’s expected growth rate for the current year is more than 100%. The company has outperformed the industry in the year-to-date period (+12.9% vs -1.5%).
Hanesbrands Inc. (HBI - Free Report) is a marketer of basic innerwear and active wear apparel in the United States and internationally. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings increased 0.5% over the last 90 days. The company’s expected growth rate for the current year is 7%. The company has outperformed the industry in the year-to-date period (+10% vs -1.5%).
5 Trades Could Profit ""Big-League"" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure.
Image: Bigstock
US Consumers Most Confident in 13 Years: Top 5 Picks
American consumers are gaining confidence in the economy. Consumer confidence crushed expectations and soared to the highest level in October since 2004. A decline in gas prices, record low jobless rate and series of highs for the stock market buoyed optimism on household finances and the economy.
The economic expansion, after eight years, is finally noticeable. The U.S. economy has started to expand close to the range expected by President Trump and some other Republicans, while both manufacturing and service sectors accelerated at a record pace last month.
Since Americans gained optimism on the economy, things have been looking up for consumer stocks. Stocks of consumer discretionary companies are poised to grow on the signs of renewed consumer spending strength.
Confidence in American Economy Highest in 13 Years
According to the University of Michigan, the U.S. consumer sentiment index touched 101.1 in October, up from 95.1 in September. The key economic indicator that measure attitudes on future economic prospects reached its highest level since 2004.
Americans think the economic scenario right now is “as good as it gets”. There were big gains in both the index for present economic conditions and consumer expectations. The index for current economic conditions rose to 116.4 from 111.7, while the index of consumer expectations increased to 91.3 from 84.4.
Here’s how all the three major indices performed on a year-over-year (Y-Y) basis:
(Source: University of Michigan)
What Drove the Confidence?
Household optimism was largely driven by falling gas prices, labor market health and the U.S. stock market’s record-breaking run. The average price of a gallon dropped by 43 cents over the last five weeks after it had climbed after Hurricane Harvey impacted the Gulf Coast refinery outlets.
A clearer view of last month’s labor market data, in fact, showed that keeping the effects of the hurricane aside, the U.S. employment scenario is continuing to tighten. The unemployment rate declined to 4.2%, the lowest since February 2001 and wages increased 0.5% to an average of $26.55 an hour, per the Labor Department data. In fact, in the last 12 months, hourly pay increased 2.9%, up from 2.7% in the prior month and also in line with a post-recession high.
U.S. stocks, in the meanwhile, continue to extend their winning streak, with the Dow and the S&P 500 rising for five straight weeks. So, what has driven the indices higher? Investors cheered the first step toward enacting major tax reforms later this year after the Republican-controlled U.S. House of Representatives approved a 2018 budget resolution.
The House of Representatives, led by Speaker Paul Ryan, passed a $4.1-trillion budget legislation that paved the way for them to rewrite the much-awaited tax code later this year. The budget aims to repeal Obamacare and also contains $1.1 trillion in non-entitlement outlays, including nearly $622 billion for defense. The far-reaching plan will trim taxes for corporates as well, which will offset the revenue loss and not add to national debt that is now above $20 trillion.
Solid second-quarter earnings also provided a fillip to the U.S. equity market despite political turmoil, both at home and abroad. Meanwhile, a similar shot in the arm is expected in the third-quarter earnings season (read more: Q3 Earnings to Work Magic for Wall Street: Top 5 Picks).
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 big-ticket items like cars, appliances, etc. In fact, the consumer discretionary sector is mostly affected as spending plays a major role in determining revenues. Automobile stocks often track these numbers and so do appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewelry retailers and cruise line operators, to name a few.
5 Stocks to Gain as Consumers Gain Confidence
Since the aforementioned sector is 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). Such stocks also boast of 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.
Guess’, Inc. (GES - Free Report) designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings surged 45% over the last 90 days. The company’s expected growth rate for the current year is 31%. The company has outperformed the industry in the year-to-date period (+29.5% vs -1.5%).
Wynn Resorts, Limited (WYNN - Free Report) develops, owns, and operates destination casino resorts. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 5.5% over the last 90 days. The company’s expected growth rate for the current year is 48.2%. The company has outperformed the industry in the year-to-date period (+64.5% vs +24%).
Malibu Boats Inc (MBUU - Free Report) is a designer, manufacturer and marketer of performance sport boats. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings advanced 2.2% over the last 90 days. The company’s expected growth rate for the current year is 19.4%. The company has outperformed the industry in the year-to-date period (+66% vs +2.7%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lions Gate Entertainment Corp. (LGF.A - Free Report) is engaged in motion picture production and distribution, television programming and syndication, home entertainment and location-based entertainment. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings rose 10.5% over the last 90 days. The company’s expected growth rate for the current year is more than 100%. The company has outperformed the industry in the year-to-date period (+12.9% vs -1.5%).
Hanesbrands Inc. (HBI - Free Report) is a marketer of basic innerwear and active wear apparel in the United States and internationally. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings increased 0.5% over the last 90 days. The company’s expected growth rate for the current year is 7%. The company has outperformed the industry in the year-to-date period (+10% vs -1.5%).
5 Trades Could Profit ""Big-League"" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure.
See these buy recommendations now >>