IN THE NEWS

🛍️ Why Consumer Stocks Continue to Slide

Some of the country’s most recognizable brands are having a rough year, from Target to Dollar General to Kraft Heinz. That seemingly flies in the face of evidence that the economy is humming along.

Many companies in the retail space, which fall in the consumer sectors of the S&P 500, are making new 52-week lows this month. Target blamed a rise in crime for eating into its profits. Other companies have said consumers are curbing their spending on physical goods.

• The S&P 500 has fallen 5.7% from its 2023 peak on July 31. But the S&P Retail ETF (ticker: XRT) has declined 12% over the span.

• In 2023, the S&P 500 is up about 13%, while the retail benchmark is flat — the widest such spread in six years.

The drivers: High gas prices probably aren’t going to help consumer companies. While high-end brands attract high-earning consumers generally unfazed by inflation, most brands appeal to everyone else. And just about everyone has been feeling the effects of high gasoline prices, high housing costs, tighter credit conditions, and sticky inflation.

• U.S. consumer confidence has fallen for two months, a signal that Americans feel less comfortable about their finances.

• As one chief investment officer noted, “If food prices are high, if gas prices are high, I can buy less of the discretionary stuff that I want rather than need.”

• There are a few outliers like Costco Wholesale, whose shares are up about 24% this year and reported increases in earnings and sales last month.

Financially constrained: Dollar General is just one of the companies that said customers are buying fewer discretionary items, leaving them with extra unsold inventory. Its stock has been cut in half this year alone.

• Its CEO spoke for millions when he said: “Our core customers continue to tell us they feel financially constrained. Her savings are gone, and so certainly she is still living with the inflationary pressures.”

🚗 Automakers Have High Hopes For EVs, Not Buyers

It turns out that people aren’t buying electric vehicles as much as automakers would like.

Look, EV sales are up 51% this year, so it’s not all bad news. But the rate has slowed from a year earlier, and some brands like Ford and Toyota are racking up unsold inventory.

• What isn’t helping: high-interest rates, and thus costlier auto loans, plus higher sticker prices. Other consumers are reluctant to switch because of high sticker prices and so-called “range anxiety,” the feeling that your vehicle has limited range and needs to be recharged.

• The first wave of drivers who wanted an EV likely already own one (or more), which brings automakers to a new frontier: more hesitant buyers.

Ford’s CFO noted that “the curve isn’t accelerating as quickly as I think a lot of people expected. We’re seeing it flatten a bit.”

• Recall that in 2022, many automakers were surprised by how many people actually wanted an EV. There were soaring prices. There were long waiting lists. There were supply chain issues nationwide.

Car companies are investing billions into building factories and battery plants to support the expected demand increase for EVs in the coming decades. But for now, more buyers are trying hybrids, which combine gasoline engines with battery power to reduce fuel consumption.

Toyota’s head of sales said hybrids remain a “smoking-hot market…we are trying to make as many hybrids and plug-in hybrids as possible.”

🤦 “Project of the Century” Gets a Reality Check

Whether you’ve heard of China’s Belt and Road Initiative (BRI) is a good indicator of whether you’re a certifiable econ/geopolitics “nerd” or not (it’s okay; we’re nerds, too!)

For those not familiar: It’s a huge undertaking, hence why China’s top leader, Xi Jinping, called it the “project of the century” in 2017.

• The hope was to fund a web of infrastructure projects globally, particularly in developing countries, to showcase and boost the country’s growing financial & economic influence and strengthen relationships with nations often overlooked by the U.S. and its allies.

• Many participating economies are scattered across Latin America, Africa, Eastern Europe, the Middle East, and Southeast Asia.

How’s the BRI holding up? A decade after its launch, one Chinese official told Bloomberg that the Belt and Road Initiative is largely “dead,” suffering twin blows from Covid and China’s ongoing economic struggles.

As a result, Chinese banks have less capital to lend, and pressure to recoup funds from past loans has intensified.

• China’s activity in BRI countries is down 40% from its 2018 peak, while accusations that Beijing is an irresponsible, borderline predatory lender in some cases have cooled enthusiasm for further engagement in the program.

• A fallout in U.S.-Chinese relations, too, is pushing countries like Italy to exit the BRI altogether.