Some have argued that the market's recent pullback is a sign of greater underlying problems. Others have argued that the dip is just a healthy (albeit volatile) temporary correction that was long overdue. Both sides have made rational arguments, but let me add one more as I take the side of the "short-term pullback" camp: the stocks that have held up and even thrived in the midst of the bearish headwind aren't stocks that should be desirable if we were really slipping back into a recession.

IN PICTURES: World's Greatest Investors

Oh, that's not to say the usual defensive arenas haven't made their usual advances. For instance, the SPDR Gold ETF (NYSE:GLD) reached an all-time high this week, as did the commodity itself. Silver and the iShares Silver ETF (NYSE:SLV) have been pretty hot as well.

That's speculation from traders though. When you drill down into the recent winning and losing stocks - the realm of the average long-term investor - we see some relative strength suggesting that 'Joe Investor' is still banking on an economic rebound; he may well end up creating that self-fulfilling prophecy.

Defense Schmefense
Take a look at the market's best-performing industries over the last two and a half weeks (minus REITS and precious metals), and see if you spot the still-aggressive mentality.

Industry Index 1-Week % Chg (since 05/07) 2-Week % Chg (since 04/30) 3-Week % Chg (since 04/23)
S&P 1500 Home Furnishings Index 9.16% -2.74% -3.85%
S&P 1500 Household Appliances Index 8.25% -2.21% -0.41%
S&P 1500 Leisure Facilities Index 7.27% 1.72% -3.28%
S&P 1500 Leisure Products Index 6.96% 1.20% -1.23%
S&P 1500 Department Stores Index 6.54% 1.05% -5.49%
S&P 1500 Index 4.23% -2.63% -5.16%

Surprised? I'm not - the consumer discretionary sector has been unstoppable as of late. It's strong enough to be your best chance at resisting a marketwide pullback, as the above numbers show.

What the Heck's a "Leisure Facility"?
I don't know why Standard & Poor's uses the term to describe businesses that own and operate amusement parks, casinos, resorts and sporting events. Nevertheless, that's what they are.

And, it's a trend I believe in, though I don't think I'd follow the crowd and dive into an obvious name like Wynn Resorts (NASDAQ:WYNN) or Las Vegas Sands (NYSE:LVS). Rather, I'd look a little bit further down the size scale for something along the lines of gym and spa owner Life Time Fitness Inc. (NYSE:LTM). The company has beat earnings estimates in each of its last four quarters, so I don't doubt the forward-looking P/E ratio (2011) of 16.5.

Leisure Products
The term 'leisure product' can be just as ambiguous, though deliberately so. It can include everything from toys to cameras to electronic gizmos.

Toymaker Hasbro (NYSE:HAS) and boat manufacturer Brunswick (NYSE:BC) are a couple of high-profile examples of such companies, and each has done more than its part in contributing to the recent strength. Again though, something a little more obscure like ATV manufacturer Polaris Industries (NYSE:PII) may be preferable. Brunswick, in comparison, isn't even expected to turn a profit in 2010. Like Life Time Fitness, Polaris has topped earnings estimates for four straight quarters, and is packing plenty of value into the stock's price.

All the other industries that walloped the broad market's recent performance are self-explanatory.

Bottom Line
If investors were really certain that things were going to get worse rather than better over the remainder of 2010, they wouldn't be so collectively optimistic about sales of golf clubs, four-wheelers and casino excursions.

So why the apparent panic that the pullback over last two weeks means so much more than just a dip in the grand scheme of things? Great question. It actually looks like something along the lines of "do as I say, not as I do." because the truth is, investors have bought and stuck with consumer discretionary names better than stocks from any other sector. And as they say, money talks. (Find out how these securities can protect you from a market bust. Read Guard Your Portfolio With Defensive Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!