HSBC downgrades consumer discretionary sector

As consumers show continued signs of weakness and tighter budgets, HSBC has downgraded the consumer discretionary sector (XLY) as a whole. HSBC Global Private Banking and Wealth global chief investment officer Willem Sels joins Catalysts to explain the reasoning behind this decision.

Sels observes that financially healthy consumers are "choosing to spend more on... services and more on... leisure" experiences rather than discretionary items. However, he emphasizes the importance of distinguishing between companies within the retail space: "you want companies that have the pricing power because of their positioning."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

Let's get to that downgrade to the consumer discretionary sector that you did to neutral.

You said the sector needs a selective approach to some companies and some section struggling more than others.

Walk our investors listening to this through that.

What is the mindset for that stock picking narrative?

And the says that they should be applying to their own stock picking.

So it comes back to that case shaped consumer where you have some consumers feeling healthy, being secure in their jobs and therefore choosing to spend more than others but also choosing to spend more on those services.

More on that leisure on those hotels and so on.

Those are the types of companies you want in terms of positioning within the sector and then and then within those even within those buckets, we need to distinguish between the weaker and the stronger ones.

Because, of course, if you have a weakening economy, you want companies that have the pricing power because of their positioning.

They are in the markets and their pricing power, So those are the types of companies that you want to look at.

When you have a bifurcated market, it's natural to be neutral rather than overweight or underweight.

There are opportunities, but there are also companies to avoid.

Will sell.

Global Chief investment officer for private banking and wealth management at HSBC William.

Great to see you.

Great to have you back on Yahoo Finance.

Appreciate it.