Retail Sales Data Eyed as Investors Gauge Consumer Strength Amid Rate Hikes

High interest rates in the US are putting pressure on the retail industry. A few businesses have seen their shares skyrocket, while many others have seen their value eroded by months of strict monetary policy.

This year, the S&P 500 Consumer Discretionary Distribution & Retail index has increased by around 14%, virtually matching the S&P 500's gain thus far. However, a select few stocks have accounted for most of the sector's gains, led by industry heavyweight Amazon.com, which has increased by around 21% this year.

Analysts noted that higher borrowing rates have particularly impacted lower-class customers, resulting in a decline in the shares of firms catering to this market. The largest losers are Dollar General and Dollar Tree, whose shares have dropped by over 27% and 9%, respectively, year to date.

High interest rates have put pressure on several sectors of the economy, including real estate and consumer staples, including the retail sector. Earlier this week, the Federal Reserve reaffirmed that it must see further proof of declining inflation before decreasing borrowing prices.

Next week, when the United States releases retail sales figures on Tuesday, the spotlight will be on the consumer. Retail sales are predicted by Reuters-surveyed analysts to have increased by 0.2% in May. Weaker-than-expected outcomes might strengthen the argument for the Fed to lower rates sooner rather than later, especially in light of data earlier this week that showed good progress on inflation.

Although the Fed has predicted that rates will only be lowered in December, futures markets have indicated growing investor expectations of a September rate decrease.

Shifting Investor Focus Towards Value-Oriented Retail Stocks

Investors are now concentrating on businesses whose customers can tolerate higher loan rates or those that provide discounts on name-brand household goods like food or clothes, such warehouse club operator Costco Wholesale, due to the differential performance of retail equities.

Halter's fund has been investing in stocks of businesses that prioritize value for the customer, such TJX, Costco, and Walmart. Accordingly, their shares have increased by 28%, 29%, and 16%.

Senior portfolio manager at Dakota Wealth Management Robert Pavlik noted that he has owned both TJX Companies and Costco, citing their excellent inventory controls and management.

The shares of Urban Outfitters owned by Bokeh Capital Partners have increased by more than 20% this year. Urban Outfitters' prowess as a fashion merchandiser has helped the firm weather the inflationary climate, according to Kim Forrest, chief investment officer of Bokeh. She added, "people will sacrifice to look good."

Janus Henderson Investors fund manager Josh Cummings thinks that even with high interest rates, industries like internet retail will be strong.

He has been focusing on businesses like DoorDash, whose stock has increased by almost 13%, and Carvana, whose shares have almost quadrupled this year.

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