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U.S. Week Ahead (Oct 7-11): Tariffs At Top of Consumer Spending Concerns

By:

Senior Market Analyst at Interactive Brokers

Interactive Brokers’ senior market analyst Steven Levine provides a brief look into consumer sentiment in the retail sector. As the convenience of mobile shopping, or ‘m-commerce’ has increased, so have recent bankruptcy filings, including fast fashion retailer Forever 21, as well as other iconic stores such as Barneys and Diesel. According to McKinsey & Company, many apparel companies “can’t keep pace with digital competitors,” with six out of ten people now using at least one digital channel in their journey to buy clothing.

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Produced on October 1, 2019

Video Script:

Investors will receive an update on consumer sentiment in the week ahead, while the retail industry has generally been rattled by trade-related tariff concerns, as well as the move from in-store shopping to mobile-swiping.  The recent bankruptcy filing of fast fashion retailer Forever 21, for example, follows other iconic stores that have either gone under, or have been undergoing restructuring this year, including Barney’s, Diesel and Gymboree. The convenience of mobile shopping, or ‘m-commerce’, has led to intensified, but many failed efforts, to lure customers to actual stores.

According to McKinsey & Company, many apparel companies, for example, simply “can’t keep pace with digital competitors,” with six out of ten people now using at least one digital channel in their journey to buy clothing. This, McKinsey said, “has major implications for physical stores.” Meanwhile, empty retail spaces have also damaged the value of real estate investment trusts such as Simon Property Group – which owns malls where store closures such as Forever 21, Sears, Kmart and Toys “R’ Us are growing more frequent. 

Against this backdrop, while the strength of the U.S. retail sector has remained resilient despite the rolling headlines of bankruptcy filings and restructurings, certain of the Trump administration’s policies, underscored by trade-related tariffs on Chinese imports, may now be posing more adverse impacts on U.S. retailers, which, in turn, is likely to affect consumer sentiment, householding spending and, ultimately, overall economic growth.  Market participants have warned that levies on imported Chinese apparel, footwear, consumer electronics, and toys will likely impact profitability at several U.S. firms, including Nike, Macy’s, Walmart and Best Buy.

The darker outlook may be reflected in the University of Michigan’s latest survey of consumer sentiment for September. Richard Curtin, U. Michigan’s chief economist, noted that trade policies “have had the greatest negative impact,” among consumers, with a near record one-third referring to them as negative. While these and other policy concerns have so far been held in check by positive finances, Curtin added that fewer consumers now anticipate higher wages or lower rates of unemployment in the year ahead. Investors will likely be watching for the next release of U-Michigan’s survey due out on Friday, October 11th for any developments that may signal further distress for economic growth, as consumer spending comprises more than two-thirds of domestic GDP.

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more. I’m Steven Levine with Interactive Brokers, asking you to enjoy the week ahead.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Author Security Holding: No Positions

The author does not hold any positions in the financial instruments referenced in the materials provided.

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