2018 outlook: consumer discretionary

Consumers appear to increasingly favor experiences over things.

  • Consumer Discretionary Sector
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  • Consumer Discretionary Sector
  • Investing in Stocks
  • Consumer Discretionary Sector
  • Investing in Stocks
  • Consumer Discretionary Sector
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Technology has changed the consumer landscape in so many ways—particularly for retailers and media companies. But one aspect of consumer nature has not changed: our desire for experiences and sharing them. In fact, consumer spending has undergone a striking shift over the past several decades, as people appear more willing to open their wallets for experiences than tangible discretionary goods, including clothing and footwear.

Spending on durable goods, such as household equipment, home furnishings, automobiles, and auto parts, has declined as a percentage of total personal consumption expenditures (PCE). Instead, we've seen a marked increase in purchases of accommodations, recreation, and other experience-related products and services (see chart). This trend is likely to continue through 2018 and beyond, and companies that can deliver unique travel and experiences to consumers stand to benefit most.

Among other specific indicators, the percentage of households planning vacations has grown sharply in the past year, while cruise lines, recreational vehicles, and other categories related to recreation and leisure have recently notched high consumer-sentiment scores.

Social media as a powerful driver of spending habits

The prevalence of social media—especially among millennials—is a major driver of this trend toward experiences. Social media users are just one click away from seeing pictures and videos of their family and friends hiking Machu Picchu, attending a music festival, or participating in a road race. The increased time consumers spend on social media and their inclination to share photos instantly and frequently are creating trip envy, and are fueling consumers' desire to share similar experiences and tell the world about them too. As such, I believe social media firms should provide investment opportunities over the next year, as consumers continue to search for and share travel, sports, and leisure.

Overall, my view is that companies that can bring consumers something special relating to travel (hotels and time-shares, for example) and experiences (such as skiing and gambling) are best positioned to benefit from this trend in 2018 and beyond. I'm also positive on cruise lines, which I believe are another strong play on the expanding desire to travel. In addition, similar types of companies in select countries around the globe—particularly China—stand to benefit from an increase in outbound travel. Increasing margins, as well as return of cash to shareholders and valuation, should remain attractive components for many of these stocks over the next year.

Next steps to consider

Research the Fidelity® Select Consumer Discretionary Portfolio (FSCPX)

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Katie Shaw is a sector portfolio manager for Fidelity Investments. Ms. Shaw, a CFA charterholder, joined Fidelity in 2008 as an equity research analyst, and has managed multiple consumer discretionary sector and industry portfolios.
Views expressed are as of Dec. 1, 2017, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
References to specific investment themes are for illustrative purposes only and should not be construed as recommendations or investment advice. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk.
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The consumer discretionary industries can be significantly affected by the performance of the overall economy, interest rates, competition, consumer confidence and spending, and changes in demographics and consumer tastes.
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