Retail stocks show differentiation under pressure from high interest rates, with strong performances from Amazon, Costco, and others
The rise in US interest rates has different effects, with some retail stocks performing well and others performing poorly. Companies like Amazon and Costco saw their stock prices soar, while Dollar Tree and Dollar General saw their stock prices fall. Retail companies focusing on low-income consumers are more affected by the rise in interest rates. The Federal Reserve has stated that more evidence of cooling inflation is needed before considering a rate cut. Investors are focusing on companies that consumers can afford high interest rates and home goods companies offering discounts. The market expects US retail sales to grow by 0.3% in May. Companies like Walmart are closely watched
According to the Smart Finance app, rising interest rates in the United States are putting pressure on the US retail industry. While the stock prices of many retail companies are being suppressed, a few companies are seeing their stock prices soar. Data shows that the S&P 500 non-essential consumer goods and retail index has risen by nearly 14% so far this year, which is roughly in line with the increase in the S&P 500 index. However, most of the gains are concentrated in a few stocks, including heavyweight Amazon (AMZN.US), which has risen by nearly 21% this year.
Analysts say that at the same time, the stock performance of retail companies focusing on low-income consumers is poor, partly because these consumers are more affected by the rise in interest rates. The worst-performing stocks include Dollar Tree (DLTR.US) and Dollar General (DG.US), which have fallen by nearly 27% and nearly 9% respectively this year.
Apart from real estate, the retail industry is one of the few economic sectors clearly affected by the pressure of interest rate hikes. The Federal Reserve reiterated earlier this week that more evidence of cooling inflation is needed before considering a rate cut. Greg Halter, research director at Carnegie Investment Counsel, said, "Due to the rise in gasoline and grocery prices, the middle and lower income groups are feeling squeezed. Even with a strong economy, they feel terrible."
US retail sales data for May will be released next week. The market currently expects a month-on-month growth of 0.3% in US retail sales for May. Data released earlier this week showed encouraging progress on inflation, and lower-than-expected results could support the Fed in easing monetary policy sooner. Futures markets reflect investors' increased expectations of a rate cut by the Fed in September.
The different performances of retail stocks have prompted investors to focus on companies that consumers can continue to afford high interest rates, or companies that offer discounts on home goods such as clothing or groceries, such as Costco Wholesale (COST.US).
It is reported that Greg Halter's fund has been buying stocks of Walmart (WMT.US), Costco Wholesale, and TJX Companies (TJX.US). The business models of these companies all emphasize creating value for consumers, and their stock prices have risen by 28%, 29%, and 16% respectively this year.
Robert Pavlik, Senior Portfolio Manager at Dakota Wealth Management, holds stocks of Costco Wholesale and TJX Companies, noting that both companies have strong management and inventory control. He said, "I believe inflation will remain but will be moderate, and consumers will continue to seek to maximize the value of their dollars."
Bokeh Capital Partners holds shares of Urban Outfitters (URBN.US), which has risen by over 20% so far this year. Kim Forrest, Chief Investment Officer of Bokeh Capital Partners, said that Urban Outfitters' strength as a fashion retailer has helped the company navigate the inflationary environment, adding, "People will sacrifice some things for the sake of looking good." "
Janus Henderson Investors' portfolio manager Josh Cummings believes that even with high interest rates, sectors such as online shopping will continue to thrive. He has been keeping an eye on companies like Carvana (CVNA.US) and DoorDash (DASH.US), with the former's stock price nearly doubling this year and the latter's rising by about 13%. He stated, "We are not very optimistic about the overall prospects of the consumer sector. But we do believe that we are in the early stages of some growth stories."
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