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Consumer stocks set to retreat, some say

Debate persists about whether consumer spending can keep rising.

David Duprey/Associated Press/File 2013

Debate persists about whether consumer spending can keep rising.

The great engine of global growth, the American consumer, is starting to sputter.

Retail sales are falling, consumer confidence is sagging, and financial analysts are cutting profit forecasts for clothing chains, department stores, and restaurants. Stocks of these companies seem vulnerable to a pullback after more than tripling in the last four years. That’s because they sell ‘‘discretionary’’ goods that people can delay buying.

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‘‘The consumer looks a lot more precarious than he did a few weeks ago,’’ said Mark Vitner, senior economist at Wells Fargo Securities. He thinks Americans are too poor, and too scared, to buy a lot more.

Bulls counter that the slowdowns were blips caused by chilly weather. Some economists argue that people who have delayed replacing big-ticket items like air conditioners and dishwashers aren’t likely to hold out much longer.

‘‘At some point, ‘It’s nice to have a new one,’ becomes ‘I need to buy one,’ ’’ said Scott Hoyt, an economist at Moody’s Analytics.

At stake is more than the fate of some market darlings. Consumer spending drives the economy.

So far, stocks of ‘‘consumer discretionary’’ companies have mostly shrugged off the bad news. But some are beginning to cool.

Darden Restaurants Inc., owner of Red Lobster, among other chains, has fallen 5.4 percent in April. Harley-Davidson Inc. is down 6.5 percent from a four-year high last month. Even mighty Amazon.com Inc. is slipping, off 8.3 percent from its record high in January.

Analysts who follow consumer discretionary companies expect first-quarter earnings to rise 7.1 percent — higher than the 2 percent forecast for all companies in the Standard & Poor’s 500 but down from 12.2 percent at the start of the year, according S&P Capital IQ.

The bad news began late last year. Christmas sales were disappointing. And while spending picked up in the new year, much of the increase came from higher gasoline prices and utility bills, not more shopping at the mall.

On April 12, the government said retail sales slipped a seasonally adjusted 0.4 percent last month, instead of rising as expected. Sales fell across many categories — food and drinks, health-care products, general merchandise, sporting goods, books and music. Electronics sales fell 1.6 percent, the fourth drop in as many months. Sales at department stores fell 1.2 percent. The same day a key measure of confidence dropped to recessionary levels. The University of Michigan consumer survey fell to 72.3, the lowest since July. The average for recessions is 76.

But consumer discretionary stocks have kept chugging. Since the market hit a 12-year low in 2009, they have jumped 235 percent, the biggest gain by far among the 10 sectors in the S&P 500.

The problem is they can fall dramatically, too. Should investors be worried? Bulls says the March fall in sales was an anomaly. Perhaps their biggest argument is that it would be an odd time for a pullback. Consumers, if anything, seem in the best shape in five years.

Vitner is not convinced. He notes the rise in household wealth has come mostly from stocks, and most gains have gone to a small number of people: the wealthy.

‘‘The cold reality is that for the vast majority of households, [the stock market] has not increased their wealth much,” he said.

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