Morgan Stanley CIO: keep away from consumer discretionary
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Morgan Stanley chief equity strategist Mike Wilson was blunt in his bearish assessment of consumer discretionary stocks in an interview with CNBC on Tuesday.
He noted that while inflation is often a positive for markets given its impact on GDP and revenue growth, the current environment is less encouraging given its impact on costs. Next, he anticipates significant âdemand destructionâ and margin pressure that will lead to more disappointing earnings results and âthe next leg down for the market.â
He cited consumer discretionary stocks as the most obvious sector to be impacted in coming quarters, with industrial and technology spaces also due for headwinds. The commentary offered to CNBC dovetails with recent notes from the equity strategist citing the war in Ukraine and its impact on fuel and food costs as an added tax on consumers already dealing with high inflation. He advised taking defensive positions in healthcare, REITs, and utilities. 
Wilson has been particularly bearish in recent quarters, taking a consistently pessimistic view on consumer strength in particular. For example, in February his firmâs survey noted that consumers âacross the income spectrumâ are bracing for higher costs for staples and anticipate lowering discretionary expenditure. The firmâs survey noted that durables, consumer electronics, and travel spending is expected to decline for lower income cohorts in particular.
To be sure, just as Wilsonâs bearishness comes into vogue, Bank of America is advising a contrarian take on the pervasive pessimism. Read more here on why Bank of America is suggesting the lack of vocal bulls is a contrarian bullish signal in itself.
Consumer discretionary names that could be impacted include:
Consumer Discretionary Select Sector SPDR Fund (XLY), Tapestry (TPR), PVH (PVH), Lululemon (LULU), O'Reilly Automotive (ORLY), Travel + Leisure (TNL), Skechers (SKX), Nike (NKE), Advance Auto Parts (AAP), Harley-Davidson (HOG), Burlington Stores (BURL), LKQ (LKQ), Wynn Resorts (WYNN), Bright Horizons (BFAM), Six Flags (SIX),Las Vegas Sands (LVS), Marriott Vacations (VAC), and Domino's (DPZ).