Consumer Cyclical: Solid Economic Fundamentals Drive Discretionary Spending

• Consumer cyclical sector valuations remain slightly elevated, with a weighted average price/fair value ratio of 1.05, in line with last quarter's valuation. We attribute this to healthy consumer sentiment, low unemployment rates, and stable asset market valuations.
• We've long held the belief that those companies that offer a combination of experience, specialization, and convenience are best positioned to defend their competitive advantages in an increasingly e-commerce world. While concerns about potential disruption from businesses like  Amazon.com (AMZN) linger across many consumer companies, we believe there are certain categories that are better positioned, embracing the aforementioned qualities.
• We continue to have a favorable view of the travel and leisure space, and the increasing share of wallet companies in these categories are capturing. As consumers continue to migrate to experiences over things, subindustries like cruising and lodging should benefit.
• Other consumer product companies that have shown a willingness to invest in convenience, ease of use, and experience--Airbnb and Uber come to mind--continue to grab at market share gains across their user base.

The market continues to favor consumer cyclical names, with the group continuing to trade at a weighted average price/fair value of 1.05, the same ratio the group traded at last quarter. We continue to attribute the bullish market sentiment to a number of factors, including healthy consumer sentiment in the U.S. and many other developed nations, low unemployment rates and wage increases that are helping drive middle-class consumption globally, and equity and housing market conditions that have been conducive to wealth effect spending.