U.S. consumer confidence stabilized in May, indicating Americans are quite hopeful that the economic drubbing from the novel coronavirus outbreak worldwide will be short-lived. What’s more, Americans are now more optimistic about their future conditions as gradual re-opening of the economy helps lift spirits.
And with more confident Americans, things are looking up for consumer discretionary companies in particular.
Consumer Confidence Picks Up in May
According to the Conference Board, the consumer confidence index went up to 86.6 in May from a revised 85.7 in April. This came after rapid declines in the index in March and April. Confidence took a beating in those months after the coronavirus outbreak ravaged Main Street as well as Wall Street.
Nonetheless, in May, an index that measures how Americans feel about their income, business, economic and labor market conditions in the next six months, or the so-called future expectations index edged up to 96.9 from 94.3.
By the way, a separate survey by the University of Michigan also showed an improvement in consumer sentiment in early May. The preliminary reading on consumer sentiment for the month of May ticked up to 73.7 from 71.8 in April.
Lynn Franco, senior director of economic indicators at The Conference Board, meanwhile said that “following two months of rapid decline, the free-fall in Confidence stopped in May.”
What Drove the Confidence?
There are good reasons for the rebound in confidence. As states are letting businesses reopen, indicating that the economy is back on track, consumers’ sentiment improved. Economic restrictions related to COVID-19 are being gradually removed and there are ample signs that Americans are feeling safe to travel and congregate in larger numbers.
Federal aid in the form of stimulus checks, extra jobless benefits, contributions to salaries paid by small business houses and a low interest rate environment also lifted consumers’ spirits. Lest we forget, policymakers trimmed the benchmark federal funds rate a full percentage point to a range of zero to 0.25% in order to pump cash into the financial system and help banks provide more loans to businesses and households.
At the same time, widespread discounts on prices of consumer goods have made it easier for consumers to weather the storm in May.
Why Does Consumer Confidence Matter?
Such an improvement in consumer confidence number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. This is because the more the confidence households generate, the more will they spend.
Notably, consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a petty number.
5 Top Gainers
The consumer discretionary sector is mostly affected as spending plays a major role in determining revenues. But since spending is expected to improve on better consumer confidence, picking stocks from the consumer discretionary sector seems like a smart move.
We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The stocks also boast a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
BJ's Wholesale Club Holdings, Inc. BJ operates as a warehouse club on the East Coast of the United States. The company currently has a Zacks Rank #1 and VGM Score of A. The company’s expected earnings growth rate for the current quarter and year is 23.1% and 19.9%, respectively.
Perdoceo Education Corporation PRDO operates colleges, institutions, and universities that provide education to student population in various career-oriented disciplines. The company currently has a Zacks Rank #1 and VGM Score of A. Its expected earnings growth rate for the current and next year is 10.2% and 13.9%, respectively.
Take-Two Interactive Software, Inc. TTWO develops, publishes, and markets interactive entertainment solutions for consumers. The company currently has a Zacks Rank #2 and VGM Score of B. The company’s expected earnings growth rate for the current quarter is 145.8%.
Duluth Holdings Inc. DLTH sells casual wear, workwear, and accessories for men and women under the Duluth Trading brand in the United States. The company currently has a Zacks Rank #2 and VGM Score of A. The company’s expected earnings growth rate for the next year is 180%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vista Outdoor Inc. VSTO designs, manufactures, and markets consumer products for outdoor sports and recreation markets in the United States. The company currently has a Zacks Rank #2 and VGM Score of A. The company’s expected earnings growth rate for the current quarter and year is 50% and 54.2%, respectively.
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