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Trade Fears Hurt Consumer Sentiment: Should Retailers Worry?


The Wall Street is juggling with various macro and micro issues at the moment, including U.S.-China trade dispute, Facebook data breach, apprehensions about three or more rate hikes by the Fed this year and latest being the airstrike on Syria. All these events have kept the market on tenterhooks with investors scurrying for safe havens. A clear reflection of these factors were visible in the recent outcome of the Consumer Sentiment data that declined from its 14-year high.

Per the preliminary report released by the University of Michigan, Consumer Sentiment index dropped to 97.8 in April from March’s reading of 101.4, and also came below analysts’ expectations of 100.5. Economists blamed negative news that popped up time and again for the nervousness in the market.

Do Retailers Need to Worry?

Apparently, consumers’ expectations about the economy have somewhat retreated. A fall in consumer sentiment may impact consumers’ spending pattern, which accounts for over two-thirds of the U.S. economic activity. Undoubtedly, reluctance on the part of consumers to spend more is the last thing retailers want.

Nevertheless, experts are of the opinion that consumer sentiment still remains at a decent level. Notably, the index inched up 0.8% this month from a year earlier. Published on The Wall Street Journal, chief economist of Pantheon Macroeconomics, Ian Shepherdson, said “the current conditions index spiked in March, presumably as people saw the tax cuts coming through, so a correction in April was always a decent bet.”

Definitely, the retailers have nothing to fear as of now. A robust job market, massive tax cuts and sound economic fundamentals are likely to trigger consumer spending. Notably, a strengthening labor market may lead to gradual wage acceleration, and in turn boost consumer confidence. All these sound constructive for retailers.

Notably, the Retail-Wholesale sector has advanced roughly 10% in the past six months and has comfortably outperformed the S&P 500’s growth of 4%. Markedly, the sector is anticipated to witness year-over-year bottom-line growth of 12%, per the Earnings Preview. This fares much better than the previous quarter, where earnings climbed 3%. Top-line is also projected to increase 7.6% compared with 9.7% growth registered in the preceding quarter.

Wrapping Up

With earnings season all set to gather momentum it will be prudent to hold on to some retail stocks that are likely to beat estimates. These are stocks with a favorable combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy's, Inc. M has an Earnings ESP of +5.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kohl's Corporation KSS has an Earnings ESP of +0.91% and a Zacks Rank #1.

The Gap, Inc. GPS has an Earnings ESP of +2.35% and a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +1.05% and a Zacks Rank #3.

Dollar Tree, Inc. DLTR has an Earnings ESP of +1.87% and a Zacks Rank #3.

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