Expectations for a revival in retail stocks are dimming as Wall Street analysts warn of a trio of challenges: shoplifters, recession-wary spenders and students saddled with the return of debt payments.
Investors are running out of reasons to bet on retail shares after a lackluster start to the year. Inflation remains sticky in the face of the Federal Reserve’s most aggressive monetary tightening in a generation, leaving Americans to wrestle with higher borrowing costs and the risk of a recession — just as student loan payments return in the second half of 2023.
That, and an uptick in shoplifting, has John Zolidis, founder of consumer-focused investment adviser Quo Vadis Capital, bracing for choppy performance in retail stocks over the coming months.
“It’s a lot easier to see the bearish scenario coming to pass,” he said. “The consumer has been stronger than expected overall, so it could continue, but the environment’s working against that outcome.”
A key gauge of consumer equities is up 11% in June after four straight months of declines. Still, it’s lagged the broader S&P 500 Index so far this year, up just 4.1% compared to a 14% advance in the benchmark. That follows a 33% drop in retail shares last year, the worst annual performance since the 2008 financial crisis, as consumers shifted spending to necessities amid a soaring rate of inflation.
Fed Chair Jerome Powell and his colleagues vow to keep pushing up interest rates, if needed, to combat consumer price increases, adding pressure on Americans who’ve borrowed to buy homes or cars. That’s caused shoppers to keep their discretionary spending in check — at least according to bellwether retailers Walmart Inc. and Target Corp.
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