Using Some Discretion in Consumers

The Consumer discretionary sector makes up about 4% of the S&P/TSX Composite index. Some companies you may recognize are Astral Media Inc. (ACM.A), Groupe Aeroplan Inc. (AER), Cineplex Galaxy Income Fund (CGX.UN), Canadian Tire Corporation (CTC.A), Dorel Industries Inc. (DII.B), Forzani Group (FGL), Magna International Inc. (MG.A), Sears (SCC) and Tim Horton’s (THI).


Since the low point over the last year on November 20, 2008, the consumer discretionary sector has risen about 6%. The S&P/TSX Composite has risen 16.6% in comparison. Although we are seeing rising bottoms, the current price is below the 50 day moving average. At the end of December there was brief rally where it crossed the 50 day moving average. However, since the beginning of the year, the trend has been down and been bouncing against resistance at the 50 day line. Technically, not a bullish sign and no sign of improvement.

Fundamentally, the recession is not being kind to consumers and things will likely continue to worsen. On Friday the US job loss report was worse than expected. Since the recession began in the US they estimate 3.6 million jobs lost. This is giving Obama some ammo to get his stimulus package through the Senate. In the Globe and Mail this weekend in an article titled The Close: Jobs meets Stimulus, it was written, “If investors were betting on Friday that the dismal U.S. jobs report for January would turn up the heat on the political necessity for a massive stimulus plan, they were right: President Barack Obama immediately used the 3.6 million job losses since the recession began to push for the U.S. Senate to approve his $900-billion (U.S.) stimulus plan without delay.” Since people are not spending like they used to, it is going to hit consumer discretionary stocks harder than most. There are some trends worth noting in a recession that will benefit some stocks in consumer discretionary sector. For example people substitute expensive goods for less expensive goods. Consider this when picking your stocks in your portfolio from the consumer discretionary sector.