As Americans felt more optimistic about their present and future conditions, their confidence rebounded in April.
And with more confident Americans, things are looking up for consumer stocks. Stocks of consumer discretionary companies in particular are well poised to grow on signs of renewed strength in consumer spending.
Consumer Confidence Bounces Back in April
According to the Conference Board, the consumer confidence index climbed to 129.2 in April from 124.2 in March. The key economic indicator that measures attitudes on economic prospects exceeded analysts’ expectations of a 126.9 reading and has rebounded in April after a dip in March.
The future expectations index also moved up to 103 from 98.3. And people’s confidence in present situations improved from 163 in March to 168.3 in April. Both indexes are now close to their highest levels in a decade.
What Drove the Confidence?
There are good reasons why confidence has bounced back. The stock market recently touched record highs, and interest rates and inflation are pretty much muted. The labor market remains healthy and wages continue to grow at a steady pace. But, most importantly, consumers’ optimism was largely driven by strength in the domestic economy.
According to the Commerce Department, the U.S. economy expanded at a 3.2% annual pace in the January-March period, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase in gross domestic product (GDP).
Such encouraging growth followed 2.2% advancement in the prior three months. President Trump also applauded the GDP growth saying that the numbers were “far higher than the high expectations.” And let’s admit that such growth overcame headwinds including government shutdown in January and uncertainty about tax refunds, indicating that the economy is well poised to gain in the long run.
Why Does Consumer Confidence Matter?
Such an encouraging 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.
U.S. consumers, in fact, already ramped up spending in the first quarter. Spending increased 0.9% in March the largest monthly increase since August 2009, according to the Commerce Department. Spending also rose 0.1% in February. By the way, data for January was revised up to show a 0.3% rise in spending instead of the earlier reported growth of 0.1%.
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, as do appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewellery retailers and cruise line operators, to name a few.
5 Top Gainers
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). 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.
Bed Bath & Beyond Inc
. (BBBY - Free Report
) operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles. The company, currently, has a Zacks Rank #2 and VGM Score of A. The Zacks Consensus Estimate for current-year earnings increased 11.9% in the past 60 days. The company’s expected earnings growth rate for the next quarter is 11.1% compared with the Retail - Miscellaneous
industry’s projected decline of 34.1%.
The Buckle, Inc
. (BKE - Free Report
) operates as a retailer of casual apparel, footwear and accessories for young men and women. The company, currently, has a Zacks Rank #1 and VGM Score of B. The Zacks Consensus Estimate for current-year earnings increased 4.1% in the past 60 days. The company’s expected earnings growth rate for the current quarter is 110.5% compared with the Retail - Apparel and Shoes
industry’s projected increase of 69.2%.
Boot Barn Holdings, Inc
. (BOOT - Free Report
) operates specialty retail stores in the United States. The company, currently, has a Zacks Rank #1 and VGM Score of A. The Zacks Consensus Estimate for current-year earnings increased 2.3% in the past 90 days. The company’s expected earnings growth rate for the current year is 90% compared with the Retail - Apparel and Shoes industry’s projected rise of 3.5%. You can see the complete list of today’s Zacks #1 Rank stocks here
Chipotle Mexican Grill, Inc.
(CMG - Free Report
) operates Chipotle Mexican Grill restaurants. The company, currently, has a Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for current-year earnings increased 5.9% in the past 60 days. The company’s expected earnings growth rate for the current year is 43.2% compared with the Retail - Restaurants
industry’s projected increase of 6.8%.
Ford Motor Compan
y (F - Free Report
) designs, manufactures, markets and services a range of Ford cars, trucks, sport utility vehicles and electrified vehicles. The company, currently, has a Zacks Rank #1 and VGM Score of A. The Zacks Consensus Estimate for current-year earnings increased 9.1% in the past 60 days. Its expected earnings growth rate for the current quarter is 18.5% compared with the Automotive - Domestic
industry’s projected decline of 0.2%.
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