MARKT EN ECONOMIE - FOR PROFESSIONAL INVESTORS

Buyer beware: Shop around for
consumer stocks

12/sep/2018
By Kate Moore

Consumer confidence is soaring in the U.S. and Europe. Good news for consumer stocks? Not entirely. We explore the variables that are disrupting the consumer sectors, presenting challenges – and opportunities – for investors.

Equity highlights

  • Winners and losers. We see a brighter outlook for consumer discretionary stocks versus staples. The former rank among top-performing sectors globally this year while the latter fall near the bottom even after recent outperformance
  • A new defenseStaples broadly are no longer bastions of steady growth, strong cash flow and high dividends. This argues for selectivity and for casting a wider net for defense. We prefer U.S. stocks overall, but see staples opportunities in Europe. For defense today, we like U.S. tech’s potential for growth that can outrun inflation.
  • The EM opportunity. Population and income growth in emerging markets (EMs) has translated to increased demand for developed and EM consumer companies. We remain optimistic on this long-term trend despite recently softer EM data.

Snapshot

Consumers around the world are feeling increasingly upbeat about the economic outlook. U.S. consumer sentiment, measured by the University of Michigan Surveys of Consumers, has risen to the highest levels since the global financial crisis across all income groups. European consumer confidence has exceeded pre-crisis levels and stands near its highest since 2000, according to data from the European Commission.

Rising disposable incomes are a key factor. Disposable income growth in the U.S. stands at roughly 5% versus the 4.4% average since 2000. In Europe, disposable incomes above 3% exceed the post-2000 average, as shown in the Deeper Pockets chart below. Japan is an outlier. In China, the National Bureau of Statistics reports household income has been growing at a faster rate than GDP as the country gradually transitions to a consumer-driven economy.

Rising confidence in the economy and willingness to spend, combined with growing income, provide ample runway for consumption globally. This is particularly true in EMs where a burgeoning middle class is developing the appetite – and means – to spend. Yet the seemingly bright backdrop also features new complexities for consumer companies, and this is changing the opportunity set for investors.

Deeper pockets
Disposable income growth in major DMs, 2000-2017

Deeper Pockets - Chart

Sources: BlackRock Investment Institute, with data from the U.S. Bureau of Economic Analysis, the Statistical Office of the European Communities and the Cabinet Office of Japan, August 2018. Notes: The blue bars represent the average annual growth rate of gross disposable income across major developed markets since 2000. The green dot represents the latest available growth rate.

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Chief Equity Strategist
Kate Moore, Managing Director, is Chief Equity Strategist for BlackRock and is a member of the BlackRock Investment Institute (BII).

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