As Federal Reserve Prepares to Raise Rates, Consumer Discretionary Stocks Remain Risky

Savita Subramanian, Bank of America (BAC) Merrill Lynch’s head of U.S. equity strategy, remains cautious about consumer discretionary stocks. ‘The one sector where we are underweight that is cyclical is consumer discretionary,’ she said. ‘Consumer stocks tend to do really well in an early cycle economy when the Fed is easing and trying to stimulate borrowing. But the minute you see the Fed start tightening, we’ve noticed that over the last three cycles, consumer discretionary stocks have underperformed the market.’ Consumer discretionary stocks in the S&P 500 have returned 8 percent so far this year, and include names like Amazon (AMZN) and Starbucks (SBUX). While the Federal Reserve hasn’t raised short-term interest rates just yet, economists expect the Fed to announce a rate hike during its September meeting. TheStreet’s Scott Gamm speaks with Subramanian.

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