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one strategy for a divided U.S. consumer

admin by admin
July 9, 2024
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one strategy for a divided U.S. consumer
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Strong consumer demand has helped the U.S. economy weather the Federal Reserve’s rate hikes, avoiding a hard landing where growth and employment turn lower. However, there are signs U.S. consumer spending is dividing across income lines. As rates stay higher for longer, signs of “consumer fatigue” are appearing, according to HSBC. The investment bank says low-income consumers are feeling the pressure of higher prices while high-income consumers remain in a “solid position,” boosted by strong home and stock markets. The “consumer is moderating, not pulling back. The U.S. consumer is and has been the engine behind economic growth,” analysts led by HSBC’s head of equity strategy, Americas, Nicole Inui, wrote in a research note dated July 3. “But low-income consumers are feeling the pinch of higher inflation while high-income consumers are in a solid position.” An unequal, “K-shaped recovery” — where higher-income households enjoy solid growth while lower-tier consumers fall behind — means investors should look to stocks that are well exposed to a “resilient” high-end consumer and “value-seeking” low-end consumer, according to Inui. That means companies like luxury cruise line Viking Holdings , as well as fast-food giant McDonald’s , can both succeed in the current consumer environment. The high-end consumer Inui estimates the net worth of high-end consumers is actually accelerating to a high single-digit rate. “This resilience is reflected in certain sectors such as hotels, which are seeing consistently solid upscale and luxury demand,” she said. HSBC highlighted hotel chains Hilton Worldwide Holdings and Marriott International as winners from this trend. Hilton has been shifting to a “demand-resilient” luxury and lifestyle business model, according to the strategist. Marriott, meanwhile, remains dominant in the luxury hotel market with about a 17% market share, HSBC said. Marriott also benefits from a “diversified global portfolio, asset-light fee-oriented strategy and scale advantage.” In addition to Viking Holdings, Royal Caribbean ‘s higher-end customer profile means forward bookings and deposits will stay strong, the HSBC analysts noted. HSBC has a buy rating on all four of the stocks. The middle- and lower-income consumer Meanwhile, rising delinquencies on auto and credit card loans — currently above pre-Covid levels — show growing weakness among lower-income individuals. These consumers are part of an increasing number of borrowers who have recently become delinquent on their loans, Inui added. “The percentage of consumers without a college degree that say they are ‘doing OK financially’ is below pre-pandemic levels,” said Inui. “As a result, discount retailers are facing high shrinkage, restaurants are becoming increasingly promotional to boost traffic and retailers with strong value propositions are gaining share.” HSBC called McDonald’s one of the stocks that offers “a strong value proposition” to consumers tightening their belts. The company recently launched a $5 value meal offering , which research shows could help boost shares, down more than 16% in 2024. In addition, Walmart’s “every day low prices” philosophy makes it another company well positioned to the lower-tier consumer, Inui said. Another retailer HSBC named was Target , which has an “expect more, pay less” strategy emphasizing private labels to boost sales. Despite high mortgage and auto loan rates, General Motors is benefiting from steady demand, Inui said. “Along with relatively stable pricing, we expect this to maintain margins near record levels and fund continued significant share repurchases,” the strategist added. HSBC has buy ratings on all four of those companies too. —CNBC’s Michael Bloom contributed to this report.

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kobeissiletter The Kobeissi Letter @kobeissiletter ·
27 Nov

The Fed's worst nightmare is officially here:

Today's data confirms ALL 3 inflation metrics are back on the rise.

For the first time since February 2022, Core CPI, PCE and PPI inflation are now rising at the SAME time.

Did the Fed spark a new wave of inflation?

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kobeissiletter The Kobeissi Letter @kobeissiletter ·
27 Nov

BREAKING: Canada is considering retaliatory tariffs on items from the US after Donald Trump announced he would impose a 25% tariff.

Trump said the tariffs on Canada and Mexico will be due to open borders, drugs, and illegal aliens.

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kobeissiletter The Kobeissi Letter @kobeissiletter ·
27 Nov

The Fed's worst nightmare is officially here:

Today's data confirms ALL 3 inflation metrics are back on the rise.

For the first time since February 2022, Core CPI, PCE and PPI inflation are now rising at the SAME time.

Did the Fed spark a new wave of inflation?

(a thread)

Reply on Twitter 1861858357440651714 Retweet on Twitter 1861858357440651714 699 Like on Twitter 1861858357440651714 3370 Twitter 1861858357440651714
kobeissiletter The Kobeissi Letter @kobeissiletter ·
27 Nov

BREAKING: Net long positioning in S&P 500 futures by institutional investors is now at ~240,000 contracts, the most on record.

Bullish positions by asset managers, leveraged funds, and other investors have QUADRUPLED in just 18 months.

The number of held contracts is TWICE as…

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