Citi analysts Tobias M Levkovich, Lorraine M Schmitt and Christina Wood see few prospects for investments in the Consumer Discretionary sector in their recent research note ‘No Humor in Consumer.’

“Investors have been hit hard in the Consumer Discretionary sector, despite signs of greater household wealth, employment growth (albeit recently disrupted seemingly by weather) and respectable consumer spending trends,” points out the note. “However, given valuation issues and lead indicators, plus earnings estimate revision momentum, the underperformance is not surprising and is expected to continue.”

In fact, year to date, the Consumer Discretionary sector is down 2.73% and the Consumer Staples is lower by 3.48%. These are the two worst sector performers, behind only Telecom Services, which fell 3.37%.

Consumer Discretionary sector: It’s not the consumer actually…

The poor showing is really not linked to the health of the US consumer. “Indeed, there are many positive signs regarding US consumers including higher home prices, rising hiring intentions, lower debt service as well as pent-up demand,” says the note. “Hence, the consumer side of the economy may be in better shape than even consumer sentiment data implies.”

The retail group had it coming…

The group saw a steep fall in momentum of earnings revisions and prices that were running ahead of earnings contribution. Moreover, Citi back-tested the group’s valuation metrics correlated to future price performance and found there was still room for further downside.

Consumer Discretionary retail-valuations

Consumer Discretionary retial-upward-revisiosn

Consumer Durables and Apparel – not a buy yet

This group also fell victim to stretched valuations. Moreover, Citi’s highly correlated lead indicator model also predicts more price damage ahead.

Consumer Discretionary durables

“The weight of the evidence is still very far from suggesting that one should step up and buy these shares, in our view,” say the analysts.

Consumer services also in difficulties

The Citi analysts point out that the Consumer Services Sector also does not provide and investment logic given that its valuations relative to performance are unattractive and short interest, though diminishing, still points to further price weakness.

Consumer Discretionary cons-services

Deal flow perks up Media, but…

The Media group of stocks, though the best performer in the sector, nevertheless are low on investment conviction, because of worrisome lead indicators and overly rich valuations, as per the charts below.

Consumer Discretionary media

Overall, consumer stocks suffer from “challenging data” and as such Citi retain their Underweight ratings on Autos, Consumer Durables, Retailing, Media and Consumer Services.