The most popular and overcrowded stocks are no longer in the technology sector, CNBC reports. Consumer discretionary stocks, including hotels, restaurants and retailers, now represent the most overweight sector in fund managers' portfolios, according to analysis by Bank of America Merrill Lynch, a division of Bank of America Corp. (BAC), as cited by CNBC. By contrast, tech is now at its lowest relative weight in 15 months, per the same sources. "Managers have historically had lower exposure to stocks that are hurt by rising rates and higher exposure to stocks that benefit from rising rates," as Savita Subramanian, head of U.S. equity and quantitative strategy at Merrill Lynch, wrote to clients on March 2, as quoted by CNBC.
The two most overweight consumer discretionary stocks are e-commerce giant Amazon.com Inc. (AMZN) and online hotel reservation service Booking Holdings Inc. (BKNG), formerly known as Priceline Group. These two stocks were held by 51% and 38%, respectively, of the funds surveyed by Merrill Lynch, per CNBC. For the year-to-date through the close on March 7, Amazon is up by 32.1%, while Booking Holdings has gained 22.2%, per MarketWatch.
While often treated as a tech stock, as a member of the FANG, FAANG, and FAAMG groups, Amazon officially is classified by Standard & Poor's as consumer discretionary, due to its core business in online retailing.
Other large capitalization consumer discretionary stocks that have outperformed the market so far in 2018 include: department store chain Kohls' Corp. (KSS), up 20.2%; off-price retailer The TJX Companies Inc. (TJX), up 8.1%; luxury accessories seller Tapestry Inc. (TPR), up 14.6%; consumer electronics retailer Best Buy Co. Inc. (BBY), up 7.6%; and hotel franchisor Marriott International Inc. (MAR), up 2.4%. By comparison, for the year-to-date through the close on March 7, the S&P Index (SPX) is up by 2.0%, while the S&P 500 Consumer Discretionary Sector (S5COND) has gained 5.5%, per S&P Dow Jones Indices.
Consumer discretionary stocks are bolstered by strong economic fundamentals, including low unemployment, rising wages, and the highest reading for the Conference Board Consumer Confidence Index (CCI) since the year 2000, as reported by Advisor Perspectives. Among all the advanced economies in the OECD, consumer confidence is at its highest since 2007, per the OECD. "Some of the headwinds that the U.S. economy faced in previous years have turned in tailwinds," as Federal Reserve Chair Jerome Powell testified before Congress last week, as quoted by The Wall Street Journal.
The same words of warning apply to consumer discretionary stocks in 2018 as they did to tech stocks in 2017. Momentum investing that chases a hot sector can be dangerous, given that it bids up prices and valuations. With crowded investments, another risk is that the exit may get jammed on the way out, once either fundamentals or investor sentiment turn against a sector. Meanwhile, the Investopedia Anxiety Index (IAI) has been registering very high levels of concern about the securities markets among our millions of readers worldwide.