Our outlook for consumer cyclical stocks

Macroeconomic uncertainty and increased price competition paint a troubling fourth-quarter picture for consumer cyclical names.

R.J. Hottovy, CFA 2 October, 2013 | 2:45AM

Highlights
Increased visibility behind Federal Reserve policy could support consumer cyclical stocks over the near term, but disconnect still exists between the global macroeconomic picture and valuations.
Expect price competition to remain a key theme during the 2013 holiday season and beyond.
Apparel retailers are set for a dire finish to the year as traffic and conversion continue to disappoint.

By and large, consumer cyclical stocks in the United States have shaken off concerns about lacklustre global economic growth, payroll tax increases and fiscal austerity measures (both domestic and abroad) thus far during 2013. Morningstar's Consumer Cyclical Index has posted a total return of 28.6% for the year to date, 760 basis points ahead of the 21.0% total return for Morningstar's U.S. total coverage universe. Generally speaking, we've been encouraged by the current U.S. unemployment picture, a rebound in the manufacturing and service sectors, an improved housing market outlook and manageable inflation levels. We also believe that increased visibility regarding the Federal Reserve's monetary stimulus program (waiting for more evidence that economic progress is sustainable before adjusting the pace of purchases) should provide support for consumer cyclical stocks (and stocks in general) over the next several months.

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About Author

R.J. Hottovy, CFA

R.J. Hottovy, CFA  R.J. Hottovy, CFA, is a consumer strategist for Morningstar.