Consumer discretionary, also known as cyclical stocks, refers to a category of stocks in the financial markets that represent companies producing non-essential goods and services. These goods and services are considered optional or discretionary, as they are not necessities required for basic living needs. Instead, they are products consumers typically purchase when they have surplus income or during periods of economic prosperity.
Examples of consumer discretionary products and services include luxury items, entertainment, travel and leisure, dining out, apparel, electronics, and other non-essential goods. Companies in this sector tend to be more sensitive to changes in the overall economic conditions and consumer sentiment. When the economy is performing well, these stocks can perform strongly as consumers have more disposable income to spend. During economic downturns or recessions, consumer discretionary stocks may experience decreased demand and lower revenues as consumers cut back on their spending.
In general, consumer discretionary stocks are an essential part of a diversified investment portfolio as they can offer the potential for higher returns during economic expansions. However, investors should carefully consider their risk tolerance and investment goals when adding these stocks to their portfolios, as they may also be subject to greater volatility and fluctuations in value compared to more stable sectors such as consumer staples or utilities.