The Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA:XLY), often viewed as a barometer for consumer spending, has proven itself resilient, boasting a remarkable 33.1% surge over the past twelve months, outpacing the broader S&P 500 index as it braces for Q4 earnings. This upward trajectory unfolded against a backdrop of slower yet robust earnings in 2023, speaking volumes about its allure amidst inflation-conscious consumers, who are cautiously tightening their purse strings.

The consumer discretionary sector (XLY) exhibited a sturdy 10.9% uptick during Q4, eclipsing the expansive market surge of over 11% on the S&P 500.

Quantitative Measures: Gaining Insight

According to Seeking Alpha’s Quant, the consumer discretionary sector garnered an overall health score of 3.41 out of 5. This assessment is underpinned by quantitative indicators like valuation, earnings growth, and historical stock performance.

Ahead of the impending fourth-quarter earnings release, Quant has bestowed a “buy” or higher designation upon 17 out of the 58 individual stocks, while deeming 40 stocks as “neutral,” and singling out one stock as “sell” or lower. Furthermore, the sector resonates with an analyst consensus score of 3.54, painting a favorable outlook, with approximately 33 stocks carrying a “buy” or higher rating.

Leading the vanguard with the most enviable Quant Ratings are the online reservation juggernaut Booking Holdings (BKNG) and the cruise line behemoth Carnival (CCL), notching up Quant scores of 4.90 and 4.85, respectively. These notches are accompanied by resounding “Strong Buy” endorsements, with BKNG securing an A+ on profitability and CCL proudly parading an A+ on growth.

Meanwhile, industry heavyweights such as Amazon (AMZN), Tesla (TSLA), McDonald’s (MCD), Nike (NKE), Ford Motor (F), MGM Resorts International (MGM), Best Buy (BBY), and Home Depot (HD) landed scores ranging between 3.49 and 2.83, all being consigned to a “hold” standing according to the Quant system.

Notably, Hasbro (HAS) emerged with the lowest Quant rating in the sector at 2.04, coupled with a “sell” rating, meriting a C- on profitability but a commendable B on valuation.

2024 Outlook

Optimism among SA subscribers appears muted for the consumer discretionary sector (XLY), with a meager ~2% expressing belief that it will emerge as the premier performer within the S&P 500 sector for 2024.

Projections for the consumer discretionary sector’s (XLY) EPS growth in Q4 2023 stands at an estimated 22%, complemented by a 2% sales growth and a median stock EPS growth of 5% year-over-year.

Analysts’ Expectations

According to S&P Global Market Intelligence’s quarterly analysis of the US public sector, consumer discretionary endures as the highest-risk sector in Q4 2023, with inflation-wary consumers remaining circumspect in their spending endeavors.

The consumer discretionary sector (XLY) received a bump from ‘underweight’ to ‘market weight’ by Citi Research, citing marked enhancements in margins for the consumer discretionary distribution and retail subsectors.

Wells Fargo’s assessment underscores that the information technology (XLK), consumer discretionary (XLY), and communication services (XLC) stand as the lone sectors within the S&P 11 sectors, boasting a substantial outperformance of the index on a year-to-date basis.

Raymond James’s January Investing Strategy Quarterly report expounds upon the dynamics of the 11 S&P 500 sectors, positioning consumer discretionary (XLY) in an overweight rating. This assessment stems from its track record of resilient earnings growth, particularly during recessions.

ETFs: (XLY), (VCR), (FDIS), (IYC), (FXD), (RXI), (RSPD), (PSCD), (SCC), (UCC).

Delving Deeper into Consumer Discretionary