U.S. consumer stocks remain pressured by fund flows back into technology and rising freight costs, but low crowding creates selective opportunities

Overview

This report is Bernstein's update on U.S. consumer strategy and quantitative research. It evaluates the performance of U.S. Consumer Discretionary and Consumer Staples relative to the broader market year to date in 2026, and explains recent trends through valuation multiples, earnings revisions, crowding, ROIC, quality, short interest, and analysts' bottom-up industry views. The core conclusion is that the U.S. consumer sector remains weak in the short term, affected by capital being redirected toward a recovering technology sector, soft consumer confidence, rising freight rates, and uncertainty around oil and food prices. However, selective opportunities have emerged in certain low-crowding and fundamentally sound subindustries.

Core views

The report recommends maintaining a neutral, rather than broadly increasing, exposure to the U.S. consumer sector. The main reasons are that consumers remain cautious, lower-income groups face pressure from inflation, fuel costs, and benefit cuts, while middle- and higher-income consumers remain resilient but are becoming more selective in their spending. Strategically, investors should avoid smaller companies with high U.S. trucking costs as a percentage of COGS and limited protection from scale or forward contracts. The report relatively favors hotel chains, premium travel demand, apparel and off-price retail, Dollar Stores, Broadline Retail, and Soft Beverages. Restaurants and Tobacco offer selective opportunities but are becoming more differentiated, while Food Producers still need to wait for a fundamental inflection point.

Analysis framework

The report combines quantitative and fundamental frameworks. It first compares the relative share-price performance of consumer subindustries year to date in 2026 and over the past quarter, then decomposes changes in valuation multiples and earnings expectations, incorporating signals such as ROIC, quality factors, crowding, and short interest. Analysts for each subindustry then add views on demand, costs, competition, macro events, and specific names to form portfolio allocation recommendations for the second half of the year.

Methodology notes

• Quantitative Strategy AnalysisSubindustry Relative Performance and Historical Comparison

  Compare consumer subindustry performance in 2026 year to date with historical valuation, earnings revision, and quality indicators

  The report uses 2026 YTD returns through June 30, 2026, and uses November 30, 2025 data to maintain comparability with the previous consumer strategy report.

• Factor and Crowding AnalysisCrowding, Short Interest, ROIC and Quality

  Assess whether the sector is excessively crowded, whether valuations fully reflect fundamentals, and whether funding risks are concentrated

  The report highlights that crowding in U.S. Consumer Discretionary is at a more-than-25-year low. It also tracks rising short interest and changes in quality indicators to identify contrarian opportunities or avoid risks.

• Fundamental Scenario AnalysisK-shaped Consumer and Cost Shock Framework

  Differentiate winners and losers by income level, supply-chain cost exposure, and pricing power

  The report believes lower-income consumers are under greater pressure, while middle- and higher-income consumers remain resilient but increasingly seek value. Rising freight, oil, food, and packaging costs create differentiated pressure on companies with physical supply chains.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. Consumer Sector

  Core research subject

  Strengths

  After the decline in crowding, valuation and positioning pressures have eased somewhat, while fundamentals remain sound in some subindustries.

  Weaknesses

  Weak consumer confidence, fund flows into rebounding technology stocks, and freight, fuel, and food price pressures are weighing on performance.

  Comparison

  Compared with the strong rebound in technology stocks over the past three months, consumer stocks have been considerably weaker.

  Risks

  If oil prices, food prices, and freight inflation continue to rise, earnings revisions in the consumer sector could remain under pressure.

• Hotels, Resorts & Cruise Lines

  Constructive allocation direction

  Strengths

  Domestic U.S. travel demand is resilient, while the World Cup, the event calendar, and international travel substitution effects provide support, with hotel chains particularly benefiting.

  Weaknesses

  Mainstream cruise pricing remains under pressure, and geopolitics could lead to booking pauses.

  Comparison

  Relative to industries with greater physical supply-chain and lower-income consumer exposure, hotel chains face less freight-cost pressure.

  Risks

  Oil-price volatility, international conflicts, and weak cruise bookings could affect demand.

• Apparel/Off Price Retail

  Constructive allocation direction

  Strengths

  High-quality companies such as TJX and TPR benefit from structural share gains, strong pricing power, and support from higher-income consumers.

  Weaknesses

  Rising U.S. trucking costs and tariffs could pressure supply-chain margins.

  Comparison

  High-quality off-price and apparel retailers are preferred over names with no growth or difficult transformations.

  Risks

  Valuation recovery depends on sustained sales and positive EPS revisions, while supply-chain inflation could erode margins.

• Dollar Stores

  Recommended overweight

  Strengths

  Valuations are more attractive after the share-price pullback, the low-price value proposition is more compelling in an inflationary environment, and DG and DOL offer self-help or international growth options.

  Weaknesses

  Lower-income consumers remain affected by pressure on real purchasing power.

  Comparison

  Compared with some traditional retailers, Dollar Stores benefit more as middle- and higher-income consumers trade down toward value channels.

  Risks

  If lower-income demand continues to deteriorate or rising costs cannot be passed through, earnings recovery could be delayed.

• Broadline Retail

  Maintain a positive view

  Strengths

  Value-oriented retailers such as WMT and COST can continue gaining share in a K-shaped consumption environment and amid inflation.

  Weaknesses

  Energy and packaged-food inflation could indirectly affect consumer purchasing power.

  Comparison

  Compared with low-growth retailers, scaled Broadline Retail companies have stronger purchasing and pricing advantages.

  Risks

  High valuations or slowing same-store sales could limit short-term upside.

• Soft Beverages

  Maintain a positive view

  Strengths

  KO, KDP, MNST, and CELH are viewed as relatively defensive amid slowing consumers, and some companies benefit from aluminum hedging protection.

  Weaknesses

  Demand growth has declined from its peak, and certain high-growth names remain highly volatile.

  Comparison

  Beverage demand is more resilient than that of Food and some HPC companies.

  Risks

  Commodity costs, coffee inflation, and slowing consumption could compress valuations.

• Tobacco

  Cautious

  Strengths

  Historically defensive, with relatively strong pricing power and low freight-cost exposure; the sector performed strongly in the first half of 2026.

  Weaknesses

  Price competition has re-emerged in U.S. tobacco, while PM's ZYN narrative faces competition from Velo Plus.

  Comparison

  Although the sector has outperformed most Consumer Staples industries in the short term, valuation and specific competitive risks have reduced the risk/reward profile.

  Risks

  Price competition, nicotine-pouch competition, regulatory risks, and downward revisions to earnings estimates.

Key data

• U.S. Consumer Discretionary CrowdingMore-than-25-year lowThe report believes that after consumer stocks became a source of funds for the technology rebound, crowding in Consumer Discretionary fell to an extremely low level.
• Freight Cost Protection WindowApproximately 6–9 months for large companiesLarge companies may temporarily buffer rising U.S. trucking rates through forward contracts, while smaller companies are more likely to face near-term pressure.
• Consumer Discretionary 2026 YTDHotels, Resorts & Cruise Lines 18.4%; Apparel/Off Price Retail 5.1%; Restaurants 3.4%; Textiles, Apparel & Luxury Goods -13.4%The table shows that hotels and travel performed best, while textiles, apparel, and luxury goods significantly lagged.
• Consumer Staples 2026 YTDTobacco 18.9%; Broadline Retail 5.5%; Soft Beverages 13.2%; Food Producers -0.5%Tobacco and Soft Beverages performed strongly, while Food Producers remained near the bottom.
• Recommended NamesDG, DOL, TJX, TPR, MAR, H, RCL, WMT, KDP, CELHThe report lists these names in its summary as key recommendations from fundamental analysts.
• Costco Same-store Sales ExpectationsApproximately 6–7% comp ex gas and FXBernstein believes COST could receive near-term support from same-store sales and a potential special dividend.
• Dollar General FY28 Gross Margin Expectation31.8%The report expects DG to expand gross margins through improved shrink, mix optimization, and efficiency gains.
• U.S. Hotel RevPAR TrendUp 4–6% since February, with early June data pointing to high-single-digit growthPremium and domestic U.S. travel demand remain resilient, supported by the World Cup and substitution effects related to geopolitics.

Impact & implications

At the portfolio level, the report does not support simply buying the entire U.S. consumer sector. Instead, it recommends selecting subindustries and individual stocks against a weak macro backdrop. Premium demand, value retail, scaled distribution, and soft beverages with pricing power offer greater defensive characteristics and upside elasticity. Companies with high freight-cost exposure, high exposure to lower-income consumers, unclear fundamental recovery, or high multiples unsupported by traffic require greater caution.

Risks

• Rising U.S. trucking rates could increase physical supply-chain costs, particularly affecting smaller companies and industries with high transportation costs as a percentage of COGS.
• Uncertainty around oil, gasoline, and food prices could keep consumers cautious.
• Lower-income consumers face the combined effects of weak wage growth, inflationary pressure, and benefit cuts, intensifying K-shaped consumption.
• The World Cup could alter short-term consumption patterns and support travel, but may crowd out demand for entertainment venues, gaming, or some restaurants.
• High-multiple restaurant stocks require clearer evidence of traffic recovery; otherwise, valuations could remain under pressure.
• The Tobacco sector faces the risk of renewed U.S. price competition and a weakening ZYN competitive narrative.
• Food Producers face multiple pressures from GLP-1 usage, weak demand, and investor caution.
• Geopolitical conflicts and oil-price volatility related to the Strait of Hormuz could disrupt expectations for travel, consumption, and costs.

What to watch

• Whether U.S. trucking rates continue to rise and how margins are affected when companies' forward-contract protection expires.
• Whether consumer confidence, gasoline prices, and food prices begin to ease sustainably.
• Whether spending divergence between lower-income and middle- and higher-income consumers widens.
• The actual impact of the World Cup and the 2026 U.S. event calendar on demand for hotels, travel, gaming, restaurants, and retail.
• Whether value retailers such as DG, DOL, WMT, and COST continue to gain share.
• Whether sales and EPS revisions for high-quality apparel and off-price retailers such as TJX and TPR remain positive.
• Whether hotel RevPAR, cruise pricing trackers, and booking trends continue to diverge.
• Tobacco price competition, Velo Plus's impact on ZYN share, and changes in PM and MO earnings expectations.