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Written by: Susannah Streeter | Hargreaves Lansdown
- S&P 500 sheds more than 1% in early trade as worries about interest rate hikes resurface
- FTSE 100 remains in the red as miners and housebuilders pull the index lower
- Home Depot shares slide by 5% as it warns of weaker profits ahead
- Walmart rebounds after disappointing start as investors asses longer term opportunities
Worries that disinflationary winds aren’t blowing hard enough to cool hot inflation have seeped into trading, pushing stocks on Wall Street lower with the FTSE 100 also caught on the back foot. Investors are waking up to the realisation that fresh interest rate hikes will be needed in the US - perhaps as many as three in quick succession to tame the price spiral and that’s set to send consumers more cautious.
Discretionary spending is expected to take a significant hit due to shoppers tightening their belts. While there is some evidence that consumers are ring-fencing budgets to experience life by socialising and going on trips, using hard-earned dollars on sprucing up homes is falling more out of fashion. Home Depot shares slid by more than 5% early trade after the company warned that profits will slip this year, after a strong final quarter. It’s set to be squeezed at both ends, having to pay higher wages to attract staff and navigate rises in costs through the supply chain, and at the same time demand for its goods is expected to wane as consumers make hard choices about how to spend available cash.
Walmart’s razor sharp focus on keeping prices lower means margins are set to bear the brunt of hikes from suppliers who are passing on the unwelcome effects of high input prices. With fears of a fresh triple rate hike this year from the Federal Reserve growing, cash-strapped shoppers will be rooting out deals to make ends meet as borrowing costs rise. Investors are waking up to the impact that this bargain hunting approach will have on the bottom line, with Walmart’s shares falling back in early trade. But there are opportunities amid the headwinds. Margins may take a hit, but market share could widen as more consumers turn cautious, and if they can be persuaded to hang around once inflationary pressures subside, there could be longer term benefits from short term pain. Its multi-channel approach should stand it in good stead in this respect. While it has seriously upped its e-commerce game, it also caters for the ‘shopping experience’ through its vast network of bricks and mortar stores. This combination of catering for shoppers keen to browse in-store, the convenience of curbside pick-up services and ease of booking delivery slots should help shelter Walmart better than companies like Amazon which is only just planning a physical store expansion.
The FTSE 100 has struggled to pull itself out of the red after a choppy day of trading. Fresh evidence that the housing market is rapidly cooling has sent a chill through housebuilder stocks. Mining companies are also under pressure following BHP’s bigger than expected fall in interim profits. HSBC’s strong fourth quarter results, almost doubling of a year ago, gave investors reason to cheer, with controlling costs also firmly in focus. The PMI health snapshot showing the UK economy has been proving much more resilient than was feared has also given consumer discretionary stocks, like Frasers Group, ABF and JD Sports an extra little spring in their step, stemming deeper losses on the index.
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