UL - Consumer discretionary stocks are given the buy call at BofA due to soft landing outlook

2023-08-14 10:26:10 ET

Bank of America fired off a downgrade on the consumer staples sector to Underweight from Market Weight on Monday, while pushing up its rating on the consumer discretionary sector straight to Overweight from Underweight.

Analyst Savita Subramanian and the BofA team recently revised their U.S. economic outlook in favor of a soft landing, where growth falls below trend in 2024 but remains positive. The firm now expects Q4 GDP of 2.0% in 2023 and 0.7% in 2024. The revised forecast is based on further evidence of continued resilience in the U.S. economy, including positive GDP revisions, strength in business spending, and a rebound in labor supply. The recent headlines on depleted excess savings and student loan headwinds are believed to overstate the risks to consumer spending. Meanwhile, job losses are noted to not be overly broad but largely ring-fenced to Silicon Valley, Wall Street firms, etc.

As a result of the soft landing, BofA expects a significant shift by fund managers and hedge funds from consumer staples stocks to consumer discretionary names to take place as the

Some of the largest consumer staples stocks by market cap with their six-week share price returns are Procter & Gamble ( PG ) +5.2%, Coca-Cola ( KO ) +1.6%, PepsiCo ( PEP ), Philip Morris International ( PM ) -4.6%, Unilever ( UL ) -1.6%, Mondelez International ( MDLZ ) +2.9%, Hershey ( HSY ) -6.4%, Kimberly-Clark ( KMB ) -4.7%, Anheuser-Busch InBev ( BUD ) -4.2%, Diageo ( DEO ) +0.1%, Estee Lauder ( EL ) -12.9%, and Altria ( MO ) -4.3%.

Some of the largest consumer discretionary stocks by market cap with their six-week share price returns are Amazon ( AMZN ) +3.4%, Home Depot ( HD ) +4.9%, McDonald's ( MCD ) -2.6%, Nike ( NKE ) -0.5%, Starbucks ( SBUX ) -1.1%, Airbnb ( ABNB ) -5.9%, and Booking Holdings ( BKNG ) +13.3%.

More on consumer staples and consumer discretionary stocks:

• XLP: Consumer Staples Are Too Expensive Vs. High Interest Rates
• Trading chart of XLP, XRT and the S&P 500 Index
• Seeking Alpha Quant Ratings across consumer staples stocks
• Seeking Alpha Quant Ratings across consumer discretionary stocks

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