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The Consumer Discretionary sector covers the things people buy when they have money to spare rather than the things they need. It brings together carmakers, clothing and luxury brands, retailers, and the firms behind hotels, restaurants and leisure. It matters to investors because spending here depends so directly on how confident and well-off households feel, which makes the sector one of the clearest signals of consumer sentiment in the whole market.
What the Sector Includes
Under the Global Industry Classification Standard (GICS), Consumer Discretionary splits into three industry groups and many sub-industries:
- Automobiles & Components
- Automobile Components
- Automobiles
- Consumer Durables & Apparel
- Household Durables
- Leisure Products
- Textiles, Apparel & Luxury Goods
- Consumer Services
- Hotels, Restaurants & Leisure
- Diversified Consumer Services
- Consumer Discretionary Distribution & Retail
- Distributors
- Broadline Retail
- Specialty Retail
Some of the best-known names include Amazon, Tesla, Toyota, LVMH and McDonald’s.
What it Means for Investors
Consumer Discretionary is a cyclical sector: because the spending it relies on is optional, it rises and falls with the health of the consumer. It usually does well when employment, wages and confidence are high, and is among the more exposed areas when the economy slows. It is also sensitive to interest rates, which affect both big purchases such as cars and the cost of the credit people use to buy them. Within the sector, luxury can be resilient at the very top of the market, while mass-market retail and carmakers are more directly geared to the cycle.
Potential Headwinds and Tailwinds
| Tailwinds (support the sector) | Headwinds (hold it back) |
| Strong consumer confidence: people spend more on non-essentials. | Economic downturns: optional spending is cut first. |
| Low unemployment and rising wages: more income to spend. | Rising interest rates: dearer credit weighs on big-ticket items. |
| Falling interest rates: cheaper credit supports big purchases. | Changing tastes and online disruption: can hurt individual firms. |