Transcription
This is market cap and and the earnings, um, and we're talking about the share of the index. So the sector is, uh, 9.8% of the S&P's market cap.
Next chart shows you Amazon and Tesla, which are 62% of the market cap weighted consumer discretionary. 62%. And rising. The capitalization shares in blue. So that's the percentage of them. So in 2018, they were 18%. Now they're 62%. They're almost the entire average.
Last one. This is just breaking it down in cap size. Um, the S&P 500 is in blue. This the consumer discretionary stock price, but by cap size. So the discretionary names in the S&P 400, those would be mid caps, that's in red. They look much worse than blue. And then of course, small cap discretionary in the S&P 600 look the worst. The more you go down in cap size or the more you equal weight, the more the consumer discretionary theme comes back down to earth. And it's all being distorted by those two gigantic stocks that are now almost 2/3 of the index. So doing ratio charts, doing storytelling surrounding consumer discretionary, consumer staples, it's always been nonsense, but these days what you're really saying is stocks versus two gigantic companies. That's my schtick.
I agree with almost everything you just said. I don't think it's always been nonsense. I think there used to be simpler times, the market wasn't as dynamic, and it used to make a lot more sense than it does today. But I completely agree with the premise of looking at these two, these two areas of the market and concluding anything about the economy, pump the brakes. Here's why. Look at, uh, restaurants, for example. A lot of them are doing really poorly. Oh, the consumer must be not able to afford a lot of these prices. Yeah, partially true. Obviously, it's a part of, part of it is an inflation story. You know what else is part of this story? Supply, valuation. The valuations of a lot of these quick-service restaurants were so stupid that they're now normalizing, comps are tougher, there's too many Sweetgreen's and Cava's and and the Miami Pure V. There's the competition tells you nothing about the consumer. Okay, that's number one.
Another area is the performance of the stock might tell you the opposite about the consumer and who knows in which case. So, for example, would Dollar General or Dollar Tree be ripping because the lower-end consumer is in good shape and they're able to buy more stuff, or would Dollar General be doing poorly because people that are trading down can no longer, like where else are they going to go? Or, or, or third scenario, no, the consumer's doing poorly, but the middle class is now trading down and therefore the stock is performing better. Like, it's so messy and you can craft any.
People are going to Dollar General, therefore the economy's bad, but it helps Dollar General stock.
It's just, it's very convoluted.
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