Market Moves

U.S. markets closed with a tepid rebound following Tuesdays quiet sell-off. Although market indexes were mildly higher, it is interesting to note some of the more subtle characteristics driving this market currently. For example, it seems that the millennial generation is playing a role to influence both consumer and investor behavior.

Millennial consumers, it is said among the advertising industry crowd, favor experiences over products. Perhaps it is no surprise that companies that respond to this preference are showing above average returns nowadays. 

Consider that the consumer discretionary sector, as tracked by the Consumer Discretionary Select Sector SPDR Fund (XLY), has outperformed the S&P 500 so far in 2019. This is not insignificant for two reasons. The first is that market volatility has shown that nervousness among investors remains high. The second is that XLY is maintaining its lead over the S&P 500 even during this time when stocks have pulled back to previous levels (see chart below).

Chart showing the performance of the Consumer Discretionary Select Sector SPDR Fund (XLY) and the S&P 500

Millennial Consumers Inspire Investors to Buy Companies That Provide Experiences

Among stocks within the consumer discretionary sector, those that are doing well tend to be companies that provide experience-based products and services, or at least those that are marketed in such a way as to make their products experiential in nature. It could be something as simple as Starbucks Corporation's (SBUX) way of helping customers gain the experience of personalized service with every visit. More recently, Activision Blizzard, Inc.'s (ATVI) immersive update of its flagship product, "World of Warcraft," hit the company's bottom line in a big way. Snap Inc. (SNAP) also may have found how to monetize the delivery of an ephemeral moment by, partnering with Target Corporation (TGT). Even Shopify Inc. (SHOP), powering the digital commerce behind these enterprises, is showing strength. 

The common theme between all these companies seems to be a shift in their emphasis toward enabling consumers to have meaningful experiences. Should the market rebound, these stocks might be ones for investors to watch.

Chart showing the share price performance of companies that provide experiences

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Home Improvement Stores Benefiting from Falling Mortgage Rates

The fall in the yields on the 10-year bond index (TNX) is driving mortgage rates lower. It is no surprise then that the homebuilding industry is benefiting from the shift. What may not be apparent yet is that homebuilding stocks have yet to reap a significant rise in earnings just yet.

The stocks that have done well so far are those companies that sell home improvement materials, appliances, or other furnishings. Companies like Williams-Sonoma, Inc. (WSM), The Home Depot, Inc. (HD), Lowe's Companies, Inc. (LOW), Owens Corning (OC), and Johnson Controls International plc (JCI) are all showing strength. Could homebuilder stocks be far behind?

Chart showing the performance of home improvement stocks

The Bottom Line

U.S. stocks rebounded mildly, with key stocks higher on special circumstances. Millennial investors and consumers alike seem to favor stocks that provide experiences. It remains to be seen whether the experience of buying a house on lower rates will be attractive enough to lure the millennial generation into home buying later this fall. 

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