Americans are feeling more self-assured about their present financial conditions as inflationary pressures have cooled down. This invariably will strengthen consumer spending, something that bodes well for consumer discretionary stocks like Pearson plc PSO, OneSpaWorld Holdings Limited OSW, G-III Apparel Group, Ltd. GIII, LiveOne, Inc. LVO and Carnival Corporation & plc CCL.

Americans Feel Much Better About the Economy

The consumer confidence index climbed to a two-year high of 117.0 in July from June’s upwardly revised 110.1, per the Conference Board. Market participants had anticipated the index to increase to 112.0.

Following a declining trend at the beginning of this year, the consumer confidence index has now risen for the second successive month, a tell-tale sign that Americans are now feeling less threatened about an impending recession.

Consumers’ assessment of the current business scenario, as well as future economic conditions in the upcoming six-month period, also improved. After all, the present situation index increased to 160.0 in July from June’s reading of 155.3, and that’s also the index’s highest level since March 2020. Similarly, the expectations index advanced to 88.3 in July from 80 in June.

The expectations index, in particular, continues to be above the coveted 80 mark which generally indicates a recession. It’s worth pointing out that the index remained below the 80 mark every month except for the last two-month period in the 16 months preceding July. This shows that consumers are undoubtedly more upbeat about the economy.

What Drove Consumer Confidence?

Consumer confidence improved as inflationary pressures eased, and Americans continued to exhibit resilience in the wake of interest rate hikes. By the way, strength in the present labor market has also eased worries about an economic slump.

Retail price pressures in the United States declined to its slowest pace in more than two years last month, while producer prices registered their smallest annual increase in nearly three years. Most importantly, the Federal Reserve’s favored inflation gauge moderated in May as fuel prices fell (read more: 3 Top Consumer Discretionary Stocks to Gain as Inflation Eases).

The labor market, in the meantime, remains tight, with the jobless rate hovering below the 4% mark in June, and average hourly earnings improving. It’s worth pointing out that for quite some time now, nonfarm payroll jobs have been added to the economy at a steady pace.

Why Does Consumer Confidence Matter?

The consumer confidence report is vital for estimating consumer outlays in the next three to six months. The more the household confidence, the more they are expected to open up their wallets.

From an investment perspective, with more consumers willing to spend, companies that sell nonobligatory items are certainly poised to benefit.

5 Solid Choices

We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boast a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pearson is a global media conglomerate. Pearson has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for PSO’s current-year earnings has moved up 4.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 14.1%.

OneSpaWorld is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and land. OneSpaWorld has a Zacks Rank #2 and a VGM Score of B.

The Zacks Consensus Estimate for OSW’s current-year earnings has moved up 1.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 89.3%.

GIII Apparel Group is a manufacturer, designer and distributor of apparel and accessories. GIII Apparel has a Zacks Rank #1 and a VGM Score of B.

The Zacks Consensus Estimate for GIII’s current-year earnings has moved up 9.6% over the past 60 days. The company’s expected earnings growth rate for the next year is 7%.

LiveOne provides a platform for live streaming and on-demand audio, video, and podcast/vodcast content in music, comedy, and pop culture. LiveOne has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for LVO’s current-year earnings has moved up 200% over the past 60 days. The company’s expected earnings growth rate for the current year is 154.6%.

Carnival operates as a cruise and vacation company. Carnival has a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for CCL’s current-year earnings has moved up 51.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 97%.

Carnival Corporation (CCL): Free Stock Analysis Report

Pearson, PLC (PSO): Free Stock Analysis Report

G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report

OneSpaWorld Holdings Limited (OSW): Free Stock Analysis Report

LiveOne, Inc. (LVO): Free Stock Analysis Report

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