The 1 Sector I'm Steering Clear of Right Now: Consumer Discretionary

I typically make investment decisions by weighing factors such as research, valuation, diversification, and costs -- with a pinch of goals and risk tolerance thrown in. But sometimes, simply looking around at what's going on is enough to warn me off a specific investment or sector.

Currently, I'm avoiding new investments in the consumer discretionary sector. Here's why.

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Tightening the purse strings

While inflation dropped slightly year over year, from 3.5% to 3.4%, average hourly earnings fell by 0.2% over the same period, wiping out any potential gains the average household might have enjoyed. And this is where the trouble begins.

High-income households may be holding it together, but it's getting tough for the average Joe. And it's the average Joe that the economy counts on to spend money at local retailers, buy cars, and purchase the latest electronics. Without the money normally spent by everyday consumers, profits go down.

In "normal" times, I might take this opportunity to purchase retail stocks at a bargain, but given what's going on in the world right now, I'm putting these purchases on hold. In the meantime, I find myself more interested in inflation-proof stocks.

Credit spending: Another concerning sign

This year, credit card balances hit a staggering $1.26 trillion following a $21 billion second-quarter surge. And while credit spending may add to retailers' bottom lines, there's only so much credit available before consumers run out of money and credit.

Tellingly, the people keeping retailers afloat today are disproportionately higher-income earners, while lower- and middle-income households face a steep uphill climb. And that's precisely what's preventing me from placing a bet on the consumer discretionary sector right now. The sector needs everyday people to be able to afford both necessities and extras if it's going to thrive.

Real-world events

Between the war with Iran and tariff scuffles with 60 of our trading partners, it's clear that markets are wary. Slow economic growth, stubborn interest rates, and a national debt of $40 trillion help solidify my decision to steer clear of the consumer discretionary sector, but only for now.

Tough times pass

One nice thing about growing older is having the experience to put things in perspective. This morning, I was thinking about the times in my adult life when I feared the market was falling apart. For example, when we were in college, I remember calling my husband in tears because I couldn't imagine how we'd afford gas at more than $1 per gallon. And in 2008, during the financial crisis caused by the collapse of the U.S. housing market, I recall thinking the market might never recover.

My point: I don't believe for a moment that I'm done investing (and believing) in the consumer discretionary sector. These tough times will pass, and I'll be back in there, putting money into companies I've researched and believe in. For now, though, I'll let things play out and see where things land. For me, there are too many variables in play to do anything else.

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