Consumer Discretionary

Morgan Stanley's AlphaWise survey shows apparel expectations at -16%, domestic travel at -11%, and international travel at -14%, as consumers shift spending toward essentials amid rising inflation and geopolitical concerns.

Cyclical sectors have strong earnings momentum with meaningfully lower valuations, and were already leading before geopolitical disruption — supported by private payrolls posting one of the largest rises in three years.

If supply disruptions ease and oil stabilizes at $80-90/bbl, investors refocus on earnings and AI investment, with consumer discretionary, financials, and industrials leading while bond yields decline.

If supply disruptions ease and oil settles at $80-90/bbl, investors refocus on growth drivers and cyclical sectors like consumer discretionary, financials, and industrials outperform while defensives lag.

Morgan Stanley estimates a prolonged 50% oil price increase could reduce real personal spending growth by ~40 bps within 12 months, with durable goods bearing the brunt as consumers exhaust savings buffers and build precautionary reserves.

While lower incomes absorb the direct gas-price burden, a sustained oil disruption threatens the asset-market wealth effects that have powered upper-income spending throughout 2025 — the K-shaped economy's last strong pillar.

If oil prices stay roughly 50% elevated for two to three quarters, real personal spending growth could decline by 40 basis points after 12 months, concentrated in durable goods as consumers pull back on discretionary purchases.

Morgan Stanley estimates that oil prices 50% above baseline lasting 2-3 quarters would reduce real personal spending growth by ~40 basis points over 12 months, concentrated in durable goods, with prolonged disruption also threatening upper-income consumption via negative wealth effects.