Summary
Retailing and technology industries are rich to fair value estimates, but consumer services look apt to play catch-up and outperform in the months ahead. Search trends for ‘going out’ are surging heading into the fall of 2018.
Comment
The chart below shows returns by S&P 500 industries assuming a return to our fair value estimates. We generate fair values using models combining the real-time benefits of alternative data (e.g. Google search trends) with traditional economic releases.
Autos, consumer services, and banks reside the cheapest relative to their fair values.
The hotel, restaurant, and leisure sub-industry has greatly under-performed its retail brethren. Their gap in six-month rolling returns remains greater than 20%. Each of these consumer-driven industries have been tightly correlated until the approved tax cuts of late 2017.
The next chart shows fair value estimate (blue) relative to actual levels (orange) for the consumer services industry housing the hotel, restaurant, and leisure sub-industry.
A reason to become bullish on the hotels, restaurants, and leisure companies is surging consumer interest in ‘going out.’ The chart below shows six-month rolling changes in seasonally-adjusted Google search trends for numerous discretionary services.
Interest in theater, nightlife, concerts, movies, and more is pushing to its highest in the data set back to 2004.
The last chart below shows the six-month relative return between the hotel, restaurant, and leisure sub-industry relative to the S&P 1500 (green) along with the median Google search trend for ‘going out.’ Previous sizable gaps have often been followed by the sub-industry playing catch-up to search trends.
