Goldman Sachs recently said consumer discretionaries should fall out of favor with investors as the economy slows down in 2019.
But JJ Kinahan, chief market strategist at TD Ameritrade said "every time you want to discount the sector in general I think it's a mistake."
Many expect the economy to slow in 2019, which would mean consumer spending would slow too, which does not bode well for consumer discretionary stocks like clothing retail, fashion, specialty retail, and some food and beverage companies like Starbucks Corp. (SBUX) .
But right this second, the consumer is strong, as seen by the big holiday spending season this year. "The consumer has proven to be incredibly healthy," Kinahan said. Strong wage growth of late has been a tailwind for discretionaries, as the Invesco Consumer Discretionary S&P US Select Sector ETF is up 13.99% year-to-date. Still, some retail names like Kohl's Corp. (KSS) have posted strong earnings late in 2018, and haven't gotten the boost to their share prices some might expect because investors are afraid of a weaker consumer in 2019.
Part of the picture is that some discretionaries could do very well, while others could simply suffer. "There is no sector in the market that is more individually name driven than retail," said Kinahan. "Some names do great, some names do terrible, but it's all name, to name, to name, to name," he added.
"If you're investing there and you're thinking about earnings, this is really more hand-to-hand combat," Kinahan said. "You really have to be more selective in the names you pick."
He gave the example of Abercrombie & Fitch Co. (ANF) , which has seen its stock decrease 46% in the past five years. That happened partially because the company wasn't able to keep up with fashion trends consumers were into. "Two years ago, nobody wanted to touch Abercrombie," he said. But since July 2017, it's up 97%. He noted the clothing line's recent strong quarter.
The lesson here: be selective in consumer discretioanries. There can be good return there, even when the economy isn't exactly at a peak stage.