October 11, 2021
(Bloomberg) — Souring shopper confidence may quickly catch as much as inventory market traders if this earnings season is clouded by downward steering revisions.
There’s been an “uncharacteristically” broad divergence between how customers and traders really feel concerning the economic system after the surge in delta virus instances this summer season, stated Lisa Shalett, chief funding officer of Morgan Stanley Wealth Administration.
“We imagine that company revenue forecasts are susceptible, particularly if shopper sentiment interprets into much less spending and extra financial savings,” she wrote in a be aware to purchasers.
Usually shopper sentiment strikes in tandem with the inventory market, as consumption makes up two-thirds of U.S. GDP. However whereas a number of measures of shopper confidence have plunged since a peak in July, the benchmark S&P 500 has soared, standing simply 4% off an all-time excessive.
Shoppers look like weighed down by the gradual restoration, inflation worries, and political wrangling in Washington, whereas traders are extra centered on constructive earnings revisions and refined adjustments within the Federal Reserve’s insurance policies, Shalett stated.
“Critically, the Fed and traders have embraced the view that inflation is transitory — a view not shared by customers. If shopper sentiment doesn’t shortly enhance, it may very well be a sign of market weak spot that may be sparked by disappointing earnings, weaker spending and better financial savings charges,” she warned.
Metrics that observe shopper expectations for the long run present that buyers don’t see their considerations about inflation and the labor market restoration as non permanent, she stated. If that sentiment interprets into actual motion, within the type of much less spending and extra financial savings, that would weigh on company revenue forecasts, and finally weigh on shares.