The companies that are now ‘running away’ on Wall Street are like the plague

Inflation and the supply chain force us to keep our watch with the retail sector. Photo: Reuters/Carlos Osorio

  • Supply chain and inflation are the major concerns of companies

  • Consumer spending has held but is expected to start declining soon

  • Companies like Walmart, Target or Amazon are expected to be hit the hardest

Entrepreneurs are concerned with inflation and complications (including delays, bottlenecks, insecurity, etc.) in supply chains.

They said it recently at the Davos meeting, but they also made it clear in their quarterly results and say so at analyst conferences, according to FactSet numbers.

This data consulting firm certifies that when referring to issues affecting their business, it states that at conferences on quarterly results between March 15 and May 19, 338 companies in the S&P500 referred to supply chain, or supply chain. It’s a number close to the record for the third quarter in 2021.

References to inflation were rife in those comments on accounts and forecasts. Not many comments have been made about price hikes in 12 years.

And all this, the retail sector is going through a difficult moment due to inventory management, pressure on margins and a change in consumption, which some analysts warn.

Consumption continues…although the duration is unknown

At the moment, Americans continue to open their wallets and, above all, use their savings and credit cards to continue consuming, which is good for the economy. Still, analysts at Morgan Stanley question whether the desire to keep spending high will persist.

This investment bank conducted a survey that reflects consumers’ sentiments about the effects of inflation so much that 62% of nearly 2,000 respondents consider it their number one concern (three months ago it was 56%). The biggest concern is gasoline, which acts as a regressive tax.

More than half of consumers have plans to cut spending and more are in the lower income bracket.

Where do you plan to cut spending? In goods and services less affected by inflation, such as restaurants, clothing and shoe stores. Consumers have to set budgets and you have to cut where you can (available) to continue paying bills and basic consumption )paper clip).

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Everything indicates that consumers will spend less on less important products, such as household equipment, including televisions.  Photo: Paul J. Richards/AFP via Getty Images.

Everything indicates that consumers will spend less on less important products, such as household equipment, including televisions. Photo: Paul J. Richards/AFP via Getty Images.

Sentiments collected by Morgan Stanley’s team were negative, on par with those captured by the University of Michigan consumer survey, which indicates an indicator of recession levels.

Half of consumers think their financial situation is worse than it was a year ago and the percentage of those who think it’s a bad time to make big expenses for the house (changing the refrigerator or washing machine) or buying cars or homes is one of the highest since this bank began to pressure the morale of those who, With their spending, they are responsible for 70% of the development of GDP.

Companies most affected by lower consumption

Given that inflation affects those who have the least, since they spend relatively more of their income on inevitable expenditures, there are two immediate conclusions for these analysts. The first is that “low-income consumers will spend less” so “we are more negative about companies targeting these consumers.”

The second is that pressure on prices “along with excessive consumption of goods during the pandemic will mean less demand for discretionary consumer firms”. That is, the non-essential: automobiles, components, consumer durables, clothing, consumer services such as hotels, restaurants and entertainment, as well as distribution.

It is something that is reflected in the well-known results of companies like WalmartAnd the targeting s the difference They saw a change in the consumer that hurts them and keeps them away from highly discretionary purchases. Other companies have focused more on consuming basic necessities or stores geared to looser budgets like Lowe’s and Home Depot, and have suffered a different fate due to the kind of customers they have, with a larger budget.

“yes AmazonAnd Walmart and Target have problems operating in this environment, it is likely to be worse for smaller, less efficient companies,” Morgan Stanley analysts explained to conclude that although consumers continue to spend, if they do so at a lower level, they can hurt Many companies ‘which is why we are so passive in this market segment’.

In its report, when it comes to offering investment alternatives, this bank chooses defensive values ​​and also refers to the growth of GARP companies that can defend themselves in a bear market. here they are:

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