From failed moves come fast moves in the opposite direction. That’s what’s happening right now in the Consumer Discretionary sector. Twice over the past 3 months, prices have briefly surpassed the August 2022 highs. Twice they’ve failed to sustain the move. This time, the sector got punished.

From failed moves come fast moves in the opposite direction. Sometimes, those failures can spark outright trend reversals, marking a significant turning point for prices. More often, though, those fast moves are simply reversions to the mean – a pause of sorts – that eventually work themselves out before the trend continues as before.

We think the latter is most likely what’s happening with the Consumer Discretionary sector. A failed breakout earlier this summer was followed by an 8% decline, the largest pullback since mid-March. Momentum, however, remains in a bullish range, and prices are already trying to re-challenge last summer’s highs.

From failed moves tend to come fast moves in the opposite direction. Is that what’s happening here for the Consumer Discretionary sector?

Despite its strong performance so far in 2023, the sector is still more than 25% from its prior bull market peak. For context, only Real Estate has failed to recover more of its decline.

It looked like Discretionary was poised to play catchup when it was the top performing sector in June. So far, though, prices have been unable to absorb resistance from last summer’s highs. That puts a ceiling on near-term gains for the sector.

Consumer Discretionary was the top-performing group in June, aided by broad strength across the sector. Each of sector’s 19 sub-industries were positive in June, helping to push the equally-weighted index to new 52-week highs.

That strength is even more apparent on a relative basis. When Discretionary was lagging near the end of the year, we were struck by the underlying outperformance within the group. The sector overall was moving to new lows, but the average Discretionary stock had been outperforming the average S&P 500 stock since last May!

Now, Equal Weight Consumer Discretionary is at new 52-week highs when compared to the Equal Weight S&P 500 Index.

The return of risk-appetite.

Consumer Discretionary is ready to make a move.

Consumer Discretionary has been a laggard since January, but don’t let that fool you. There are plenty of opportunities in this diverse sector.

The Consumer Discretionary sector is dominated by a handful of huge names, but if you look beneath the surface, things look quite a bit different.

If there was one theme for January, it might have been the old market adage: From failed moves come fast moves in the opposite direction.