Gaming Stocks Among Culprits in 2022 Consumer Discretionary Weakness

Posted on: December 29, 2022, 03:12h. 

Last updated on: December 29, 2022, 04:17h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Broadly speaking, 2022 was a rough year for gaming stocks, and much of that was attributable to those equities’ residence in the consumer discretionary sector.

consumer discretionary
The Las Vegas Strip. Gaming stocks were among the 2022 consumer discretionary offenders. (Image: Bloomberg)

Entering Wednesday, the consumer cyclical sector accounted for 23% of the $8.2 trillion in market value shed by the S&P 500 this year. Only the technology sector at 43% was a more egregious offender. In fairness to gaming stocks, they aren’t the major contributors to the 2022 weakness among consumer discretionary equities.

In all, 15 companies in the S&P 500 that each lost at least $100 billion accounted for a combined 70% of the entire index’s declining market value in 2022,” reports CNBC.

Using the cap-weighted S&P 500 Consumer Discretionary Index as the barometer, the biggest culprits are Amazon (NASDAQ: AMZN), Tesla (NASDAQ: TSLA), Home Depot (NYSE: HD), Nike (NYSE: NKE), Lowe’s (NYSE: LOW), and Target (NYSE: TGT). Those stocks combine for about 56% of the index’s weight.

Gaming Stock 2022 Dichotomy

Data released by the Nevada Gaming Control Board (NGCB) on Thursday confirm the state set an annual record for gross gaming revenue (GGR). It posted the 21st consecutive month of at least $1 billion in GGR, but shares of operators with exposure to the Las Vegas Strip slumped this year.

For example, MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR) — the largest operators on the Strip — are off 27.74% and 57%, respectively, year to date. Conversely, Las Vegas Sands (NYSE: LVS), which has no US footprint, is higher by 22.69% this year, easily good for one of the best showings among all gaming stocks.

Unfortunately for the broader consumer discretionary sector, 2022’s top-performing casino stocks account for small percentages of marquee benchmarks. Sands represents barely more than .5% of the S&P 500 Consumer Discretionary Index, while Wynn Resorts (NASDAQ: WYNN) — itself a decent performer this year — commands just 0.27% of that benchmark.

What that dichotomy says is that although the Las Vegas Strip was robust this year and visits to Macau were scant, operators with exposure to the latter jurisdiction outperformed their Strip-heavy peers.

What Could be Lurking in 2023

It’s often said that financial markets are forward-looking indicators. If that proves accurate in 2023, it could signal GGR retrenchment for US casinos while Macau finally recovers.

Specific to the US, analysts and economists believe high inflation, rising interest rates, and the increasing probability of a recession could dampen consumer discretionary spending on all fronts, including gaming-related expenditures.

Conversely, analysts are warming to the idea of a credible rebound in Macau GGR. But following a strong run over the past couple of months, shares of the concessionaires could be poised for a near-term pullback.