(Bloomberg) – President Donald Trump’s fickle trade policy has raised concerns about the stability of the U.S. economy, and stocks that rely the most on the strength of American consumers are beginning to feel pinched.
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From retailers to airlines to restaurant operators, it is becoming increasingly difficult to rely on companies that can spend discretion, which makes their bottom-level emphasis. Investors are reacting, bringing the S&P 500 down for the fourth consecutive week. The industry has dropped 15% over the past month, almost double the decline of the S&P 500’s larger index.
A series of disappointing revenue forecasts from retailers triggered a recent rout, with prospect cuts in the U.S.’s largest airlines exacerbating the sell-off earlier this week. Consumer companies have been competing for budget-conscious Americans, under pressure from years of rising inflation. Now, they face uncertainty about the Trump administration’s policies around trade and government spending.
In a preliminary reading of the University of Michigan data released on Friday, consumer sentiment in the United States fell by more than two years lows, while long-term inflation expectations have the highest expectations since 1993.
“We and others have embraced the consensus that the Trump administration will generally be very important growth, and even if this benefits the highest income households, there will be a general improvement,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management. “Given the destructive nature of stability, confidence and growth we see from Washington, our view is definitely worsening the security of American consumers.”
In Kohl’s Corp. and Dick’s Sporting Goods Inc.’s revenue report, the S&P Retail Select Industry Index suffered its worst week since March 2023, adding to concerns about Americans’ ability to spend. Both retailers have issued more than expected annual forecasts after similar disappointments with Walmart, Best Buy and Abercrombie & Fitch Co. over the past month.
“At the beginning of the year, the outlook is usually more cautious,” said John Zolidis, founder of Quo Vadis Capital, a consumer-centric investment advisor. “We saw that, but the company is talking about more uncertainty.”
Zolidis noted that some companies marked a softer trend at the end of February. Although this month is usually a poor spec, as spending after the holiday is usually slower, it’s something he’s been paying attention to. U.S. Department of Commerce data is expected to be retailed in February.
Brandywine’s Kaser said the classic large capitalization strategy portfolio he co-managed has dialed back its consumer discretionary shares in recent weeks, ruling automaker positions amid uncertainties surrounding tariffs. At the same time, it is an overweight consumer staple, which has an attractive equity valuation and provides consumers with essential commodities. Kroger Co., Dollar General Corp. and Tyson Foods Inc. are currently holdings.
Dollar General said Thursday that some of its customers are under so much financial pressure that they are repurchasing basic projects while high-income consumers are shopping at discount chains.
Concerns about consumer demand also plague stocks related to the travel and leisure industries. Delta Air Lines Inc. earlier this week cut revenue and profit expectations for the quarter, citing macro concerns and a slowdown in leisure demand. American Airlines Group and Southwest then responded to the warnings at an industry meeting. All in all, a batch of airline stocks fell 8.1% this week after falling 11% last week, the worst downturn in two years.
“It’s hard to see the ‘short-term pain’ caused by the White House will not affect the coming quarters,” TD Cowen analyst Tom Fitzgerald wrote. “We enter the time of the year when many people book summer travel, which seems likely to be at risk if consumers are worried about the recession and/or their work.”
Concerns about booking trends have left hotel operators, online travel agencies and cruise companies with lower stocks. The S&P, which tracks these industries, fell 6% this week, after falling 7.4% last week.
Next week, investors will turn their attention to Nike’s revenue. While the sportswear giant is in the midst of a turnaround effort under new leadership, the results should provide clues to consumer spending as it sells to many different income demographics, said Zolidis of Quo Vadis Capital.
According to Bloomberg intelligence analyst George Ferguson, pressure on low- and middle-income consumers could mean less spending on everything related to leisure travel, such as hotels, restaurants and car rentals. The S&P Composite 1500 Restaurant Index has had its worst weekly decline since October 2020, down 5.8%.
“It’s really a tough environment for the lowest 60% of American consumers, and it’s getting tougher,” said Kaser of Brandywine. He said that over the past four to six weeks, the chances of a U.S. recession have increased, and the trade war threatens to have a “meaningful impact” on GDP.
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