What Me Worry? Consumer stocks surge despite high inflation

Key Points

• S&P consumer discretionary stocks have outpaced the index by 63% year-to-date.
• Analysts foresee consumer stocks to continue their outperformance, citing companies like Chipotle, Lululemon, and Starbucks.
• In the past month, consumer stocks led all sectors except technology. 

In the past month, consumer discretionary stocks have been on a tear, with the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY returning 10.47%. That led all sectors except technology stocks during that time. 

In the past month, the SPDR S&P 500 ETF Trust NYSEARCA: SPY returned 7.43%. 

Even amid higher interest rates and inflation, stocks of companies selling "wants" versus "needs" (that would be consumer staples) have been among the best performers. 

Clothes, new cars and cruise lines all fall into the category of consumer discretionary stocks. 

Consumers not cutting back this time

According to brokerage Fidelity, "Because these are precisely the types of goods and services that customers tend to cut back on first in a pinch, the sector typically lags when the economy slows and recession risk rises."

However, Fidelity analysts add, "Instead of lagging, the sector has surged, gaining about twice as much as the S&P 500 year to date through late September." 

As of November 22, S&P consumer discretionary stocks, led by Royal Caribbean Cruises Ltd. NYSE: RCL, Tesla Inc. NASDAQ: TSLA and PulteGroup Inc. NYSE: PHM, were outperforming the broader index by 63% this year. 

Consumer stocks' outperformance may continue into 2024, based on analysts' forecasts for stocks including Chipotle Mexican Grill Inc. NYSE: CMG, Lululemon Athletica Inc. NASDAQ: LULU and Starbucks Corp. NASDAQ: SBUX.

Chipotle stock sizzles

Chipotle shares have traded higher for the past six weeks, ranking the stock among the top 10 consumer sector gainers.

A look at the Chipotle chart shows the stock clearing a buy point above 2175.01. The stock remains in buy range as it's trading just 2% above that level.

The optimism seems justified, based on expectations: Analysts anticipate the company earning $44.04 per share this year, an increase of 34%. Next year, that's seen rising by another 20% to $53.02 a share. 

Wall Street has a consensus view of "moderate buy" on Chipotle stock. 

Chipotle has been the second-best price performer within the restaurant industry lately, slightly behind Wingstop Inc. NASDAQ: WING. 

MarketBeat's Chipotle earnings data show the company topping analysts' net income and revenue views in the most recent quarter. 

Lululemon dressed for success

The athletic leisure apparel company joined the S&P 500 on October 18, and shares are up nearly 6% since then.

Joining the S&P 500 elevates a company's visibility, credibility, and investor confidence. It draws institutional investors and index funds, as well as analysts whose coverage, in turn, attracts yet more big buyers.

The Lululemon chart shows the stock rallying out of a flat base with a buy point north of $406.94. The stock is now extended beyond that point, meaning it could be risky to chase it higher. 

Instead, watch for a pullback with support at a moving average, such as the 10-day or 21-day line. 

MarketBeat's Lululemon analyst forecasts show a consensus view of "moderate buy" with a price target of $445.94, an upside of 4.04%. That relatively small upside estimate indicates that a pullback in the near to medium term isn't out of the question. 

Starbucks' bullish blend

If ever there was a company that steadily grows earnings and revenue, while a large number of people claim to never, ever go there, it's Starbucks. 

Analysts are forecasting the chain will earn $4.14 per share this year, up 17%. In 2024, that's expected to rise another 16% to $4.82 a share. 

Earnings grew 31% in the most recent quarter, the company's best performance in two years. Revenue increased at low double-digit rates in the past three quarters. 

The Starbucks chart shows the stock forming a cup-shaped base below a buy point of $115.48. After the company's most recent earnings report, Starbucks stock gapped up 9.48% on November 2. 

Trading volume was more than triple the average. Volume in the first three weeks of November was heavier than normal. Unsurprisingly, that trend ends with Thanksgiving week, when turnover across U.S. indexes is always lower. 

Watch for the stock to possibly form a handle, which could present an entry point before Starbucks stock rallies back to its previous high.