As Consumer Sentiment Sinks, So Do Consumer Stocks

Cautious shoppers have weighed down several consumer brands on the Standard & Poor’s 500 index to 52-week lows this month.

From snack giant Conagra Brands, to retailers Target and Dollar General and consumer products companies like Colgate-Palmolive and Procter & Gamble, a wave of consumer-facing stocks have all seen declines in the second half of the year, The Wall Street Journal reported.

This comes as the University of Michigan's Consumer Sentiment Index for October came in at 63 last week, compared to 68.1 in August, falling well below economists’ expectations of 67.4, according to consensus estimates from Dow Jones. While the results are preliminary, they suggest that consumers are feeling gloomier as high prices continue to weigh on their wallets.

The consumer discretionary sector makes up 10.7% of the S&P 500, while consumer staples makes up 6.6%.

The SPDR S&P Retail exchange-traded fund, which includes shares of key retail companies across a variety of industries, is nearing another 52-week low, which it first saw in June before rebounding slightly through mid-August. The fund has underperformed the wider S&P 500 all year, dropping 13% since July while the S&P 500 fell 5.7% from its 2023 peak.

Overall spending intentions on discretionary goods in August were down by almost one-fifth compared with a November 2021 baseline, pointing to weaker consumer confidence, according to a recent consumer study by Deloitte.

Companies from Walgreens to Dollar General have also reported customers pulling away from buying discretionary goods in favor of core necessities like food, according to the Journal. Several retailers have also reported record levels of “shrink,” or losses due to theft this year, with Target announcing last month that it will close nine stores, citing rising violence and retail theft.

The September consumer price index offered little hope that interest rates will come down any time soon, with inflation rising 3.7% in the 12 months through September, slightly above what economists surveyed by Dow Jones had expected.

With higher mortgage rates and steeper prices on everything from food to rental housing, there is mounting pressure on consumers that could be reflected in spending as shoppers go into the holiday season. 

“The U.S. consumer will determine whether or not the U.S. economy glides down for a ‘soft landing’ in the months ahead. As we’ve previously discussed, we believe that cracks are starting to show,” Chris Senyek wrote in a note to clients last month, pointing to a falling quits rate and rising loan delinquencies, according to CNBC. 

There are still some upswings in consumer brands. Colgate-Palmolive shares rose 1% in pre-market trading on Monday after investment firm Stifel upgraded the company’s stock to buy from hold thanks to projected strong performance in its pet food division, Hills, CNBC reported.