Market Update December 1, 2008

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Equity Markets

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Today equity markets fell sharply on concern over a weakening economy.  Gallup indicates that consumers intend to spend 29% less on gifts this year.  To make matters worse for retailers, there are five fewer days between U.S. Thanksgiving and Christmas this year compared to last year, and many shoppers have indicated they are nearly finished shopping as opposed to beginning.  Most purchases have been on the highly discounted (50-80% off) items, which makes it difficult for retailers to earn a profit.

Mind the gap: Consumer discretionary vs. non-discretionary stocks

All stocks have slumped this year, but lately the stock performance of consumer discretionary vs. non-discretionary stocks has widened.  Consumer discretionary stocks (which benefit from spending on more frivolous items such as leisure and home entertainment) are down by nearly 40% this year, compared to consumer non-discretionary stocks (which benefit from spending on necessary purchases such as food, fuel and healthcare), down by “only” 31%.

In the above chart, you can see that the Consumer Discretionary Index is down by almost 40% year to date, versus a decline of 31% for the Consumer Non-Discretionary Index