The consumer discretionary sector has been having a slow 2024. Since the start of the year, the S&P 500 Consumer Discretionary Select Sector SPDR (XLY) has advanced 8.3% as of Sept. 18. However, with interest rates about to be brought down by the Fed, the sector looks potentially lucrative.

Usually, when the economy expands, discretionaries do well. Yet, while inflation has been coming down and the GDP advance estimate for second-quarter 2024 has shown that the economy is on the right path, recent reports from the labor market, manufacturing and construction sectors have reflected a significant slowdown. This led to a wide consensus in the market that the Fed’s hand will be forced, and on cue, the central bank announced a 50 bp rate reduction in its September meeting.

Lower interest rates will reduce new borrowing costs and costs on existing variable-rate debt. Usually, the combination of these two factors encourages consumers to increase their discretionary purchases. When the pocket widens, pent-up demand can prompt higher spending on small and large luxuries.

The consumer discretionary market, which includes non-essential products like fashion, goods and household products, benefits from economic recovery and rising disposable incomes. Rising personal expenditure as a result of falling rates is often followed by a preference for luxury fashion and goods, and the sector witnesses growth. Hence, astute investors should consider betting on consumer discretionary stocks at present.

The U.S. Census Bureau announced on Sept. 17 that retail sales for August increased 0.1%, against a consensus of a 0.2% decline. There has been a rapid increase in the online shopping and e-commerce market in the United States in recent years. E-commerce has become a $6 trillion industry and will likely hit $8 trillion by 2027. In global comparison, the U.S. retail e-commerce sales accounted for $579.45 billion in the first half of 2024. With rates slated to go down even further in the time to come, consumer discretionaries appear to be a prudent choice for investors.

Our Picks

We have, thus, selected four consumer discretionary stocks for this purpose. These stocks flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum. 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. You can see the complete list of today’s Zacks #1 Rank stocks here

Royal Caribbean Cruises Ltd. (RCL Quick QuoteRCL - Free Report) is a global cruise company.

Royal Caribbean’s expected earnings growth rate for the current year is 71.2%. The Zacks Consensus Estimate for its current-year earnings has improved 3.9% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.

Crocs, Inc. (CROX Quick QuoteCROX - Free Report) is a casual lifestyle footwear and accessories company.

Crocs’ expected earnings growth rate for the current year is 6.8%. The Zacks Consensus Estimate for its current-year earnings has improved 1.2% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.

Atour Lifestyle Holdings Limited (ATAT Quick QuoteATAT - Free Report) is a hotel-centric lifestyle brand company based in China.

Atour’s expected earnings growth rate for the current year is 32.6%. The Zacks Consensus Estimate for its current-year earnings has improved 9.9% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.

Deckers Outdoor Corporation (DECK Quick QuoteDECK - Free Report) engages in the business of manufacturing and selling footwear, apparel and accessories.

Deckers Outdoor’s expected earnings growth rate for the next year is 11.3%. The Zacks Consensus Estimate for its current-year earnings has improved 3.3% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.