Goldman sees US corporate earnings as early signs that consumers are tightening their belts


According to Goldman Sachs Group, early evidence of belt tightening affecting corporate earnings is posing a greater risk to US equities than US household selling.

High inflation and falling asset prices have begun to weigh on household finances, Goldman strategists led by David Kostin wrote on Friday. They cited the 0.3 percent drop in retail sales in May and June’s record low in Michigan consumer sentiment.

Retailers like Target and Walmart appear to have overestimated consumer demand in some broad merchandise categories and are now reducing items to shed excess inventory, the strategists said.

“Slowing consumer spending poses a threat to earnings for consumer discretionary and the auto industry group in particular,” they said.

“Used car prices have fallen 6 percent since January, a sign that overall demand for vehicles could be faltering.

Goldman continues to expect the S&P 500 to end the year at 4,300 points, compared to a median of 4,650 among strategic targets compiled by Bloomberg in mid-June.

The gauge closed at 3,911.74 on Friday. It’s down about 18 percent so far this year, struggling with factors like Federal Reserve rate hikes and stubbornly high inflation.

Leaders of the Group of Seven discussed how to coordinate measures to combat rising inflation, stave off a looming recession and keep up the pressure on Russia over its invasion of Ukraine at the opening event of their meeting in the Bavarian Alps.

Some investors worry that higher living costs, rising bond yields and weak trailing stock returns could lead to stock market household capitulation and further pressure on stocks, Kostin and his team said.

But the data shows that household demand for equities has remained “surprisingly strong” this year, they said.

Since most ownership is held by the wealthiest people, who are more protected from inflation, and companies tend to buy when households are selling, the company is less concerned about that than about factors that would drive stocks down.

“The S&P 500 has risen an average of 8 percent in the years since 1950 when households were most aggressively selling stocks,” the strategists wrote.

Bloomberg Goldman sees US corporate earnings as early signs that consumers are tightening their belts

Fry Electronics Team

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