Bob Goldsborough: The U.S. equity market is largely fairly valued. Investors who are seeking attractive investment opportunities might want to consider the consumer discretionary sector, which over the past few months has been battered even as the rest of the market has done well. Since the start of the year, consumer discretionary stocks have been down about 1% in aggregate, whereas overall the broader U.S. equity market sector has been up about 5%.
Consumer discretionary companies include retailers such as clothiers and home improvement retailers, as well as media and entertainment companies, restaurants, hotels, and casino operators. The consumer discretionary space has been the single-best performing sector of the bull market over the past five years, and it's been one of the better-performing sectors over the past three years.
Consumer discretionary companies have come under pressure since the start of the year for a variety of reasons, including a very weak holiday shopping season. That was the worst holiday shopping season in five years. [They have also come under pressure] because of some lousy weather trends that kept shoppers home, and because of some dynamics in the online shopping arena including Amazon.com's decision to implement a price increase for Amazon Prime. Many of these issues strike us as temporary in nature and don't affect how we view this sector as a whole.
Two attractive ways to invest in the consumer discretionary industry are through exchange-traded funds: Vanguard Consumer Discretionary ETF and Consumer Discretionary Select Sector SPDR ETF. Both ETFs offer broad exposure to the industry and both are very low-cost. Both also are market-cap-weighted, which means that larger firms like Disney, McDonald's, Comcast, and Nike hold more sway. These two ETFs are a great way to invest in this sector that's one of the most attractively valued U.S. sectors right now.