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It's no secret that the pandemic changed our spending behaviors. But experts say there is still a lot of room to benefit from this shift — and that certain sectors and stocks could take off.
After crashing in March of 2020 when COVID-19 first hit the U.S., stocks continued to hit new records in 2021. Companies like Peloton and Zoom benefited big time from the lockdown, as did familiar tech giants like Amazon and Google.
Today, it's a different story. The S&P 500 was down around 15% for the year as of Thursday's market close, as stocks struggle amid sky-high inflation and rising interest rates. At the same time, shoppers have shifted spending from goods to services as pandemic restrictions are loosened, and we've returned to airports, movie theaters, amusement parks and more.
"The pandemic put a lot of money in people's pockets and nowhere to spend it except on goods," says Ross Mayfield, investment strategy analyst at Baird. "Now you have not just people getting back to normal behavior — which is more spending on services — but there's pent-up demand because people have been sitting at home for a couple of years."
Those factors are coming together this summer in a flush of spending on services, he adds.
While this has been going on for a couple of years now, experts say there are still good opportunities for investors. The current deviation in spending on goods and services will likely revert to their pre-pandemic trends by mid-2023, Morningstar's chief U.S. market strategist David Sekera wrote recently. That equates to "a swing of about $450 billion, and this shift could even be larger," he added.
"Many households may be saturated with goods across several categories in which consumers pulled forward future demand," Sekera wrote. "In addition, consumers may seek to make up for services forgone during the pandemic."
Of course, our economy is in an unpredictable place, and the possibility of a recession does throw uncertainty into the mix. Here are some of the industries experts say still have room to benefit from shifting consumer behavior.
Many experts thought an increase in consumer spending on services like travel would happen last summer, but this year — with the public's self-imposed COVID-19 restrictions having been even more diminished — we're really seeing a spike in travel, Mayfield says.
It makes sense, since consumers were cooped up during so much of 2020 and 2021.
“Consumers pretty much got all they needed in terms of product but they were experiencing an extreme case of cabin fever," says Sam Stovall, chief investment strategist at CFRA Research.
That's why airlines, if they can handle the pressure (and they're certainly having trouble, including capacity and labor issues), still have room to benefit. CFRA's favorite is Alaska Air, Stovall says.
When consumers travel, they also need somewhere to stay — and that's where hotels come in. Along with airlines, hotels would be the most direct play for investors hoping to take advantage of this change in consumer spending towards services, Mayfield says.
Both airlines and hotels also benefit from corporate travel and that hasn't fully recovered, adds Nadia Lovell, Senior U.S. Equity Strategist at UBS Global Wealth Management.
While hotel stocks held up pretty well in the early part of 2022, they were hit by the June selloff, according to Sekera. Hyatt Hotels, for example, has a four-star rating on Morningstar, meaning that it is trading at a discount relative to what Morningstar estimates their value to be.
When consumers look for places to spend money out of the home, it often comes back to food.
"Restaurant and hotel spending is down 4% compared with trend, yet built-up demand may be much higher than that given discretionary spending on goods remains well above trend," Sekera wrote.
As far as some favorite stocks at the moment, Stovall points to Darden Restaurants — which owns Olive Garden and LongHorn Steakhouse among other restaurant chains — and McDonald's.
4. Movies and concerts
The days of staying in and watching Netflix (or Hulu, HBO Max, Amazon Prime... the list goes on) are likely not over — but people do seem to want to get back out there and experience entertainment in a different setting.
"We think consumers are still in experience mode, and that bodes well for some of these sub-industries that would benefit from consumers wanting to get out, see and experience," says Terry Sandven, chief equity strategist for U.S. Bank Wealth Management, adding that he estimates the trend will continue at least until the end of 2022 and into 2023.
Live Nation Entertainment, which operates ticket sales for live entertainment, could be a beneficiary, Stovall adds.
5. Casinos, amusement parks, cruises
The consumer desire to get out and have some fun after so much time stuck at home could benefit companies that give people in-person experiences.
Stovall points to hotel and casino entertainment company, Caesars Entertainment, and the theme park company Six Flags Entertainment as stocks that could benefit. Meanwhile, Sekera writes that investors should consider cruise line stocks like Carnival and Royal Caribbean Cruises.
6. Beauty items and apparel
When we're going back into the world — including back to the office — we feel like we have to look the part.
"There's been a shift where consumers have had the propensity to get out, see and experience," Sandven says. That's benefited beauty items as well as office and leisure clothes, among other sectors, he says.
7. Employment services
Human resource and employment services could also benefit from people looking for new jobs, especially as when you consider recession and layoff concerns, Stovall says. He points to human resources and consulting firm Robert Half International as an example.
"As the potential for layoffs increase and hiring slows, having a professional on your side doesn't hurt," he adds.
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