Bloomberg News reports that the first signs of consumer belt-tightening impacting corporate earnings are gradually showing. This is posing a greater risk to the US equities in comparison to the stock-selling by the households in America, as per Goldman Sachs Group Inc.
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A drop in the price of assets coupled with high inflation is straining household finances, as stated by Goldman strategists, led by David Kostin Friday. They have cited the 0.3% decline in retail sales in May and June as the record low Michigan consumer sentiment.
Retailers like Walmart Inc. and Target Corp seem to have overestimated consumer demand in a few general merchandise categories and now are discounting items to clear the excess inventory, as said by strategists.
The strategists have also said that plunging consumer spending is not threatening the Consumer Discretionary stocks earnings and the Autos industry group. They also stated that the price of used cars has dropped by 6% since January, which is a sign that overall vehicle demand might be faltering. According to them, the consensus anticipation of 13% sales growth in the industry in 2023 appears to be Pollyannaish.
Goldman is still expecting that S&P 500 will end the year at 4,300 compared to the median of 4,650 amongst the strategist targets that Bloomberg has compiled as of mid-June. The gauge closed at 3,911.74 on Friday. It is down by about 18% in the current year, following struggles with factors like rate hikes by the Federal Reserve and rising inflation.
Bloomberg News reports that some investors worry that the higher cost of living, the weak trailing equity returns, and rising bond yields might lead to household capitulation in the equity market, thereby further pressurizing the stocks, as stated by Kostin and his team.
As indicated by data, households’ demand for the equities has remained strong surprisingly in the current year. Since most of the ownership remains with the wealthiest people that are inflation insulated, and as corporate tends to buy when households are selling, the company is not worried about the factors that would pull down the equities.
The strategists had written that the S&P500 surged by 8% on average since 1950 when the household was found to sell stocks more aggressively.
