Gas Prices Stall Discretionary Stocks: Don't Count Out the Consumer

Gas Prices and Consumer Stocks

Gas prices stuck at about $4.50 a gallon are keeping many Americans away from stores. However, Wall Street analysts believe American consumers have shown resilience and will show it again.

State Street Consumer ETF and Yardeni's View

The State Street Consumer Discretionary Select Sector SPDR ETF is near all-time highs. Ed Yardeni of Yardeni Research notes that the fund is heavily reliant on Tesla and Amazon, and thus deserves at best a market-weight position.

K-Shaped Economy and Consumer Spending

The sector is ground zero for the K-shaped economy, where the wealthiest keep spending while others pull back. Consumer discretionary stocks' forward profit margin is the third-lowest among the 11 sectors.

Earnings Growth and Valuations

Yardeni points out that earnings growth is set to almost double to 14.6% in 2026. Excluding Amazon and Tesla, the sector's lofty valuation is actually in the middle of its historical range.

Analyst Views on Consumer Spending

Jefferies' Carey Kaufman notes that many companies have highlighted ongoing resilience in consumer spending. Morgan Stanley's Michael Wilson believes the sector is worth investors' attention due to catalysts such as a shift back to goods spending, improvements in pricing power, and spending by high earners.

Impact of Oil Prices

The major catalyst this year has been rising oil prices. According to AAA, the national average gas price stands at $4.49, and oil prices are up 83% year to date. Wilson notes that the oil shock has held these stocks back, but that pressure should ease.

Retail Therapy

Guggenheim analyst Simeon Siegel remarks that although times may be tough for many Americans, the most popular therapy remains retail therapy.