Energy Crunch vs. Consumer Freeze: What Are Stocks Signaling?

US energy stocks are outperforming consumer discretionary stocks by the widest margin in more than 30 years. Does this mean surging energy prices will trigger a deep freeze in consumer spending? Not necessarily. Some consumer companies may be less vulnerable than the market suggests.

Volatile markets often create curious anomalies. This year, as US stocks tumbled, energy stocks surged. The S&P 500 energy sector rose 76% over a 12-month period through June 1, fueled by a global supply crisis. Meanwhile, consumer discretionary stocks have fallen by 12%.

The gap between these two sectors is striking. Energy stocks have outperformed consumer discretionary stocks by 88% on a rolling 12-month basis through June 1—the most since 1989.

Two Sides of the Consumer Coin

Why compare these two sectors? Because energy and discretionary spending are two sides of the consumer coin. Rising energy prices take a bigger bite out of household budgets, as people are forced to pay more for gas and to heat their homes. That leaves less for discretionary spending on everything from clothes to appliances to entertainment.