Consumer discretionary

Consumer discretionary is the sector made up of companies selling goods and services people want but don't strictly need: retailers, ecommerce, cars, restaurants, hotels and travel, apparel, and leisure products. Its counterpart is consumer staples, the companies selling everyday necessities like food, household products, and toiletries that people keep buying no matter what.

Because spending in this sector is optional, it tends to move with the economy. When incomes are rising and confidence is high, people buy new cars, travel, and upgrade their wardrobes; when money gets tight, those are the first purchases to be delayed. That makes consumer discretionary companies more cyclical than staples, with sales and profits that can swing harder through a downturn and recover faster on the way back up.

Sector labels can also hide a lot of variety. A large company is placed in one sector based on where most of its revenue comes from, even if a big share of its profit comes from a very different business. When comparing a company against its sector's median valuation or margins, check first whether its business looks like the typical company the median is built from.