Merrill’s chief of quantitative strategy Savita Subramanian points out something that could become important as we get into the real thick of earnings season – consumer discretionaries, many of which rely upon a buoyant US shopper, are starting to disappoint relative to globally-levered companies:
All of the consumer-oriented companies that reported last week missed on either EPS or sales, with YUM and COST missing on both. Last quarter Discretionary stocks had the highest proportion of negative surprises since 2011, and we believe weakness could persist, further exacerbated by a hit to confidence from the protracted government shutdown. This further supports our preference for multinationals where expectations are finally beginning to rise, particularly amid the recovery in Europe.
The U Mich consumer sentiment poll has begun to head down as well, this past week’s report was the weakest since January and was the first to reflect the shutdown. In my view, we could be about to see the first sub-70 print on that gauge since the end of 2011. That wouldn’t bode well for the consumer disc sector either.