Investors are increasingly focusing on consumers as the stock market continues to fall and concerns about the state of the U.S. economy grow. According to Paul Christopher, director of global market strategy at Wells Fargo Investment Institute, the market’s concentration on peak inflation and the number of interest rate hikes the Federal Reserve may make is giving way to recession worries.
In a phone interview, Christopher said that this change occurred over the previous week when equities fell on market concerns about consumer spending patterns. According to him, a recession is finally being priced in by the market.
Market entry and leaves have proved to be as difficult to predict as customers’ attitudes. In a phone interview, J.J. Kinahan, chief market analyst for online trading company Tastytrade Inc., called the drop “extremely painful to sit through.”
In a May 19 report, financial strategists at BofA Global Research recommended investors sell any “rips” in the market since the market is prone to a bear market rebound.
On Friday, a mixed finish for U.S. equities kept the S&P 500 index from falling into a bear market territory, but it did not close there. As a result, the S&P 500 and other key benchmarks saw another week of declines, with the Dow Jones Industrial Average registering its longest weekly losing streak since April 1932.
Wells Fargo Investment Institute stated in a report dated May 18 that it was upgrading the utility sector from “most unfavorable” to “neutral” in preparation for a “likely” recession. On the other hand, the consumer discretionary sector was downgraded by Wells Fargo from “neutral” to “unfavorable,” according to the report.
According to Dow Jones Market Data, this sector of the S&P 500 had the poorest performance Friday, finishing down and recording the seventh week of drops for its worst losing run since July 1996.
“Buying power is being eroded by inflation,” said Christopher. In other words, even when the Federal Reserve boosts interest rates, the problem will persist because it is “so sticky.”
Retailers Walmart Inc. and Target Corp. posted profit disappointments this week, causing investors to worry that rising inflation is hurting consumer spending and eroding the profitability of businesses in the process. As a result, shares of Walmart and Target have fallen more than 19 percent and 29 percent, respectively, in the last week.
According to Beth Ann Bovino, S&P Global Ratings’ U.S. senior economist, gas prices rose to a new record high in May. With inflation soaring across most categories, Americans spend more money on fewer products.
“A worrying disparity has formed over the previous year and has only become bigger through April,” said Bovino of S&P’s April retail sales inflation adjustment.
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