At its June 11-12 meeting, the Federal Reserve decided it would hold its interest rates steady. It inferred that it could not rely on the latest flat inflation rate in May 2024 and the job report. Cumulative inflation since the 2020 pandemic remains persistently high. As a result, the economy needs tightening credit conditions from current interest rate levels to prevent price levels from worsening.
The consumer discretionary market is the biggest loser from the interest rate policy. In the last few weeks, shares of companies that sell big-ticket items are on a downtrend.
Whirlpool (WHR) is down by over 40% from its 52-week high. Even Newell Brands (NWL), which sells household and personal products, is performing poorly.
Automotive stocks are performing even worse. Stellantis (STLA), which has severe problems from pivoting towards luxury-priced goods at the peak of the economy, failed to attract investors. The stock trades at a P/E of just 3.2 times.
Bears are growing increasingly negative on Ford Motor (F). In the last quarter, Ford offset losses from its EV unit when it benefited from sales of fleet vehicles to corporations. Unfortunately, corporate customers will cut back on spending, too.
Beware of companies that rely on consumer spending. Consumers are saving more, spending less, and cutting down on their borrowing. This is bad news for consumer discretionary and cyclical stocks.
