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Market Consumer Discretionary Stocks

Investors are taking a closer look at the market’s consumer discretionary companies. A reopening U.S. economy fuels hopes of a turnaround for some of the sector’s hardest-hit names.

Many companies in the sector have been battered by the country-wide coronavirus-fueled lockdowns. They have put pressure on growth and damaged retail spending over the last several months. Though the stocks of a few, like Amazon, have soared.

A gradual lifting of lockdowns in some states has stirred hopes for a bounce-back. That relates to the retailers that make up much of the sector.

Some investors, however, say it may be months before consumers return to their previous shopping habits. It’s unlikely for companies to see a pickup in revenues and in the stock market in the near term.

Firms, such as middle-income retailers, will report results in the week ahead. Such firms include Gap Inc and American Eagle Outfitters Inc to high-end destinations like Tiffany & Co and Vail Resorts Inc.

Jamie Cox, managing partner for Harris Financial Group, said this particular group is full of landmines. There is not going to be a lot of investor follow-through. That is until they get some certainty with what future revenue prospects are going to be, Cox added.

For instance, shares of the Gap are down 43% for the year to date. A recession that persists through the fourth quarter of 2020 would reduce the company’s revenues by 40%. That was according to a note by research firm Trefis.

The Market’s Consumer Discretionary Companies

Next Friday’s U.S. jobs report will show that the unemployment rate rose to 19.8% in May. It smashed April’s record of 14.7%, according to a poll.

Non-farm payrolls expect to drop by 7.4 million, adding to the 20.5 million jobs lost the previous month.

Generally, this data will influence consumer behavior.

Cox is focusing on dominant players, such as Inc, Walmart Inc., and Target Corp. They have a mix of essential items, such as groceries, as well as electronics and games. These can appeal to customers who may face extended lockdowns during a potential second wave of the virus.

Stock trading news reports retail companies in the S&P 500 are up by 12.9% for the year so far. This gain was powered largely by Amazon’s 31% rally. Apparel companies, by comparison, are down by 16.2% at the same time.

Retail companies will likely show rising expenses over the next several quarters. This is due to more frequent sanitation of stores and technology purchases aimed at increasing the productivity of employees working from home. This was according to Brian Jacobsen, senior investment strategist for the Wells Fargo Asset Management Multi-Asset Solutions team.

It’s really going to be a challenge to get a clear read of the direction for quite a while, Jacobsen added.

Investors eye consumer discretionary stocks as the U.S. reopens its economy.

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