Stocks are struggling after Friday’s weak finish and a third straight weekly decline for the S&P 500
.
No doubt, many are questioning the upside for stocks against headwinds such as rising interest rates and DC gridlock.
That said, Raoul Pal, co-founder and CEO of Real Vision, notes a big seasonal patch to come, saying many big institutional managers he’s spoken to have not been bullish on stocks all year and are massively underperforming their benchmarks. He said those managers will be pressured to take risks.
But here’s one more potential stock headwind, courtesy of our call of the day from Jefferies’ consumer team, led by Randal Konik, who warn of a “significant risk to consumer spending ahead,” from the looming resumption of student loan payments, which restart on Oct. 1.
They surveyed U.S. consumers with outstanding student loan debt, and found that 90% are “at least somewhat concerned about being able to meet all of their monthly expenses, while apparel, footwear, accessories, restaurants, and big-ticket items are likely to see the biggest pullbacks in spending.”
Here’s one chart from that survey showing the expected jump in payments:
The next charts show that level of concern (circa 90%) about repayments and the fact that while 60% of respondents have already started repaying their loans, 31% haven’t started budgeting for that:
Konik and his team make no bones about the trouble ahead for retailers. Among the hardest hit they see is Urban Outfitters
URBN,
cut to hold from buy, with its price target slashed 26% to $31 per share, and Foot Locker
FL,
with the same downgrade and a 36% target cut to $18 per share.
“Coming into this year, we believed [Foot Locker] new management would help to reaccelerate the business, but the turnaround has been slower than we anticipated. In regard to [Urban Outfitters], we see headwinds to its top-line that could persist through” 2025, said a team led by Corey Tarlowe.
They also cut Nike
NKE
to hold from buy, with its price target trimmed to $100 from $140. Here, they warn of tight inventory management through at least the end of 2023, which will pressure its wholesale channel, plus China growth headwinds. And then student loan repayments pressure on the sneaker maker’s top-end items.
That brings us to another part of the survey, which lays out just where consumers will start spending less. Apparel/accessories, restaurants and footwear are the most at-risk categories for reduced spending, but 52% of respondents plan to buy cheaper alternatives for groceries and 39% for apparel/accessories.
They found that 70% plan to shop more often at discount retailers, with 75% of those consumers saying they’d shop at Walmart/Sams’s Club
WMT
more often, followed by 51% for Target
TGT,
and 46% for Dollar Tree
DLTR.
“Walmart remains a top pick as we believe it is likely to witness strong downside protection ahead as a result of potential trade-down,” they said.
Read: Dollar General gets its latest bearish view as HSBC says its least favorite of 7 retailers
The markets
Stocks
are lower, as bond yields
climb. Oil prices
CL
are rising, with U.S. crude just over $90 a barrel.
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The buzz
Several companies will report this week, including Costco
COST
on Tuesday, with Paychex
PAYX,
Micron and a bunch of smaller ones that will tell the tale of deeper-pocketed consumers. See preview.
The data calendar is empty for Monday, but the week is busy enough, with home sales and prices data , several Fed speakers and the central bank’s preferred inflation gauge on Friday.
Amazon.com
AMZN
said it will invest up to $4 billion in AI startup Anthropic.
A tentative deal to end a historic Hollywood screenwriters strike was reached Sunday, but nothing yet for striking actors. That news is boosting streaming and movie stocks like Netflix
NFLX,
Paramount Global
PARA
and Cinemark
CNK.
BridgeBio
BBIO
shares are up after the biotech announced a $250 million private investment in public equity offering led by the Qatari sovereign fund.
It was a rough day for China property stocks, with China Evergrande
HK:3333
dropping 19% after it scrapped a $35 billion debt-restructuring plan, while China Aoyuan dived 74% in the developer’s first trading day since March 2022.
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The chart
Jonathan Krinsky, chief market technician at BTIG, flags what he calls an “ominous precedent,” noting that the equal-weight S&P 500
is more than 2% below its 200-day moving average, while the S&P 500 itself is still above its 200 DMA.
“In the last 30 years, this has only happened on five other occasions when the SPX was -2% or worse over the preceding two months like it is now. Those dates were Aug. ’98, Jan ’00, Sep. ’07, Oct. ’18, March ’20. These stand out as ominous dates with all of them seeing meaningful downside in the weeks/months ahead,” said Krinsky, who provides the below chart:
BTIG
Krinsky adds that headed into the fourth quarter, “we believe we will enter a new phase of rates down, stocks down as the lag effects of higher rates begin to take their toll. There is no shortage of areas that remain vulnerable, but we continue to view many areas of the consumer (retail, restaurants, RVs, boats, hotels & cruise liners) as particularly troubling,” he says.
Top tickers
These were the top searched tickers on MarketWatch as of 6 a.m.:
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