A Five-Minute Consumer Trends Update

5 Minutes, 3 Topics, Consumer Focused.

Going forward, these market notes will focus on 3 items of interest with a bullet-point focus.

Key Summary:

  • Current market views.

  • Important earnings reports & important company news.

  • State of the consumer.

Important thesis: if the S&P 500 Index has generated an annualized return of roughly 8-10% over the long-term, leading companies serving important industries should, in theory, generate 300bps+ more over long periods of time. That’s what history has shown. Understanding this and investing for it offers investors a long-term edge. Importantly, underperforming years tend to be great buying opportunities so being a contrarian also offers an edge. Brands matter because consumer behavior is largely driven by brand loyalty. The higher the loyalty, the better the business. The better the business, generally the better the stock.

Current Market Views:

  • The easy part of the “inflation is falling” story is likely over.

  • Inflation should stay elevated as wages, energy, and shelter stays elevated.

  • Food inflation could also stay elevated for longer.

  • No one should be surprised if the Fed holds its hawkish tone.

  • Markets could be more volatile around key economic data releases going forward.

  • Volatility has always offered opportunists better entry prices.

  • Not every company is thriving today, so stock selection and concentration likely wins.

  • High quality balance sheets, pricing power, margin stability, market leaders, should be favored until valuations in 2nd tier stocks get too attractive to ignore.

Earnings Reports & Corporate News that Impressed Us:

  • Lululemon (LULU):

    • Strong sales and margin trends.

    • Exceptional international growth opportunities.

    • China rebounded strongly.

    • Asia is an enormous and under-appreciated opportunity.

    • Athleisure apparel and footwear is one of the most stable consumption tends.

  • Visa (V):

    • Global spending trends have been much more stable than the street expected.

    • Higher average transaction size appears to be the norm (inflation).

    • Cross-border travel and e-commerce also remain stable.

    • Enormous global opportunity in new businesses like peer2peer volume.

    • Significant opportunities in emerging markets through “unbanked” consumers.

  • Blackstone (BX):

    • BX will be added to the S&P 500 later this month.

    • A testament to its dominance in the alternative industry.

    • An estimated $15 billion of incremental buying from passive buyers will occur.

    • This amount accounts for roughly 19% of the company’s free float.

    • The 3% current dividend should grow by an estimated 50% over the next 3 years.

State of the Consumer:

  • We continue to expect “trade down” behavior from consumers who are struggling.

  • We continue to expect “selective indulgences” to be favored over broad discretionary spending items.

  • These trends will impact corporate earnings and stock performance.

  • Lower income consumers are feeling the inflation pinch most.

  • Traditional recession-resistant “defensives” (bond proxies) have not performed well.

  • A large portion of consumer defensives are still expensive with poor growth profiles.

  • Theft across retail should continue to be pose a problem for sentiment and companies.

  • Credit card use and delinquencies have risen but are still low relative to history.

  • Consumers are favoring the important “needs” & “loves” and deferring many non-necessary spending.

  • In the consumer goods sector, discounts are back, which should keep retail sales elevated and offer attractive holiday shopping bargains.

  • In the services sector, prices remain high, and we expect consumers to be more price conscious going forward.

  • Bottom line: we are being very selective about which brands and spending categories to participate in.

 This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.