Historically, investors have bet on the consumer discretionary sector when the Federal Reserve (the Fed) cuts interest rates, as these typically have a positive effect on consumer spending habits through easier and cheaper financing rates. However, this time it's different, the state of the consumer is not what it used to be before, and that is sending money out of a few stocks in the space and into others.
Stocks in the retail industry, those that are highly dependent on domestic demand and consumer trends, will likely suffer from what's happening behind the scenes in the economy. Lululemon Athletica Inc. (NASDAQ: LULU) falls into this category, which is why price action and analyst downgrades have been working against the company lately. To avoid this pitfall, investors can look into those with much more international sales exposure.
A bigger brand like Nike Inc. with a large presence in international markets can help the financials of the business diversify across different trends and cycles. Benefitting from this same trend is Skechers Inc. (NYSE: SKX) with over a third of its sales exposure being concentrated in European markets. Before investors dig deeper into he divergence between these names, they should understand why domestic markets are seeing lower demand.
Key Factors Behind the Recent Decline in Consumer Confidence Readings
Economists can keep thinking in black or white terms when it comes to the consumer, but the reality is that there are many more factors at play, such as psychology. The consumer today has to battle with rising unemployment rates, inflation in items like rent, groceries, and insurance.
The divergence between earning power and inflation has caused one major shift in the financial sector, one that drove Warren Buffett out of consumer credit ...
