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Quarter-End Insights

Consumer Cyclical: Poised (and Priced) for a Strong 2017

Discretionary companies have benefited from decreased uncertainty post-election as consumer expectations are set with the new administration.

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  • On a valuation basis, the consumer cyclical sector appears to be slightly undervalued, with a market-cap-weighted price/fair value estimate ratio of 0.94 as of Nov. 30.
  • With the U.S. presidential election complete, some certainty has been restored to the U.S. consumer, leading to meaningful equity market gains. The Dow and S&P have risen 8% and 6%, respectively, since the election (through Dec. 15), boosting the wealth effect of spenders.
  • International companies could be at risk from changes to trade policies that the new administration attempts to implement. However, domestic employment levels could benefit as previously relocated jobs return to the U.S.
  • Wages are back on the uptick, helping to increase the average consumer's willingness to spend, and we believe that favorable demographics should continue to drive consumption, despite some potential volatility ahead as new policies take hold.

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Jaime M. Katz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.