The retail sector has been hit hard by a sell-off in recent weeks amid warnings from major companies that rising inflation has hit profits, and despite a rebound on Wednesday, experts predict challenges ahead as consumer spending forecasts. becomes difficult to do.
Retail and consumer shares rebounded, thanks to reports that Kohl’s is preparing to receive competitive takeover offers from multiple bidders, according to Reuters; Meanwhile, investors are seeing a glimmer of hope in Nordstrom’s strong first-quarter revenue and news that it raised its full-year sales outlook.
Both positive headlines helped “buy out for the first time in weeks,” says Adam Crisafuli, founder of Vital Knowledge, which has spurred the business around Dick’s Sporting Goods. Points to activity – whose shares fell roughly 10% before turning positive and rising 10% higher.
The SPDR S&P Retail ETF, which tracks the sector, rose 6% on Wednesday but has remained down nearly 20% so far this month, missing many big gains from major companies.
Large retailers such as Target and Walmart reported weak earnings last week and warned of inflationary pressures to affect profits, prompting not only a sharp sell-off in retail stocks, but fears of a recession.
Wall Street analysts have noted a shift in consumer spending — from goods to services — that impacted results, especially as companies dealing with supply chain issues last year stopped overstocking and now used large inventories. facing.
“Companies are cutting spending and hiring, while consumers are reigniting spending (and retailers are sitting on too much inventory that will need to be flushed out),” says Crisafuli.
Andy Kapirin, chief investment officer at RegentAtlantic, says the pace at which consumer demand is changing is “rapid and hard to predict,” which will be a challenge for retailers who traditionally rely on Americans for their buying patterns. are predictable. “Retailers are going to be in a feast or famine environment for the next few quarters” as consumer behavior becomes “much less predictable,” he predicts.
What to look for:
“The shift from goods to services in consumer spending has left many people out” [major retailers] “Inventory oversupply and inflationary pressures impacted operating margins,” says Katie Nixon, chief investment officer at Northern Trust Wealth Management. She points out that consumers remain healthy overall, however, the trend in travel and restaurant bookings has reached pre-pandemic levels. Not all retail earnings have been bad, either: In addition to Nordstrom on Wednesday, several other companies posted solid quarterly earnings, including TJX Companies, Ralph Lauren and Canada Goose.
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