Wednesday, August 17, 2022

Goldman sees first signs of consumer belt-tightening in US corporate profits

According to Goldman Sachs Group, the first sign that consumer belt-tightening is driving corporate earnings is a greater risk to U.S. equities than selling stocks to U.S. homes.

High inflation and falling asset prices have begun to impact household finances, Goldman strategists led by David Kostin wrote on Friday. He cited a 0.3 percent drop in retail sales in May and a record-low Michigan consumer sentiment reading for June.

Strategists said retailers such as Target and Walmart have underestimated consumer demand in some common merchandise categories and are now discounting items to clear excess inventory.

“The decline in consumer spending represents a threat to earnings for consumer discretionary stocks and the auto industry group in particular,” he said.

“Used car prices have fallen 6 percent since January, a sign that demand for vehicles overall may be faltering. The industry’s consensus expectation of a 13 percent increase in sales in 2023 appears to be Polish. ”

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Goldman still expects the S&P 500 to be year-end at 4,300, compared to the average of 4,650 among strategist targets compiled by Bloomberg by mid-June.

The gauge had closed at 3,911.74 on Friday. It is down about 18 pc so far this year, battling factors like Federal Reserve rate hikes and extremely high inflation.

The Group of Seven leaders discussed how to coordinate action to tackle rising inflation and the threat of a recession in the early exchanges of their meeting in the Bavarian Alps, as well as on Russia over its invasion of Ukraine. How to maintain pressure

Kostin and his team said some investors worry that higher cost of living, rising bond yields and weak trailing equity returns could lead to domestic surrender in the equity market and further pressure stocks.

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But the data shows that demand for home equity has been “surprisingly strong” this year, he said.

In addition, since most ownership is held by the richest people, who are more insulated from inflation, and corporates buy when they sell homes, the firm is not concerned about factors that will deplete equities.

“The S&P 500 rose an average of 8 percent during the years after the 1950s, with households selling stocks most aggressively,” the strategists wrote.

Nation World News Desk
Nation World News Desk
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