Need to Know: Here’s why one strategist says the consumer and related stocks might get a second wind

With the bad news seemingly nonstop, one might be hoping for a little good news down the pipeline. Our call of the day from Jefferies says to expect a “second wind” from consumers, which can’t hurt related stocks.

“Although U.S. average hourly earnings (5.2% y-y) are flatlining, real wage growth is
still negative. Our base case is that this will improve as CPI (gasoline) runs its course
and the consumer will experience a ‘second wind’. Consumer confidence is already
bouncing from a record low,” said a team led by Jefferies’ global equity strategist Sean Darby in a note on Wednesday.

“With capex intentions rolling over, metal and oil prices relapsing and inventories
rising, a significant portion of U.S. GDP is now moving into recession territory,” added Darby. “Paradoxically, the consumer might be getting an idiomatic ‘second wind’ or extra spurt of energy.”

Rising costs of living have disproportionately hit consumer sentiment, with global surveys at record levels. But as those household costs start to reverse, “there still may be some capacity for marginal spending, particularly drawing into the all-important Christmas season,” said Darby.

Another reason markets could see a consumer “surprise” relates to Jefferies nonconsensus theme from earlier this year, when they suggested that though wage rises excite investors in the short run, “the true multiplier for consumption comes from increased labor’s share of income or profits over the long run.”

That was steadily declining for the past 30 years until 2018.

“What has happened is the share of income has actually moved up from
the lows and the postpandemic recovery has returned the income share back to its
original trend. The move in income is probably being understated since profits were
exceptionally high last year and wages are sticky on the downside,” said Darby.

Meanwhile, 2023 earnings per share revisions for the S&P 500 Consumer Discretionary Index are starting to improve. They remain bullish on that sector.

In short, they still favor the consumer, but caution that hotel and leisure stocks in the S&P 500 could be a “double-edged sword.” Darby notes that the hotels, restaurant and leisure segment is especially sensitive to changes in wealth effects and share of income growing. It’s also one sector the Fed would like to see cool off, he adds.

The markets

Stock futures
ES00,
-0.51%

YM00,
-0.29%

NQ00,
-0.93%
are lower, with tech set to bear the brunt as a down day for Apple sets up. The dollar
DXY,
+0.36%
is up — with the pound
GBPUSD,
-1.04%
and the euro
EURUSD,
-0.19%
lower — bond yields
TMUBMUSD02Y,
4.159%

TY00,
+0.48%
are dropping, with U.K. 10-year yields
TMBMKGB-10Y,
4.067%
tumbling on that Bank of England move. Oil prices are slightly up
CL.1,
+0.61%
and bitcoin
BTCUSD,
-0.03%
is trading at just over $18,000.

Read: Why a rising 10-year Treasury yield is rattling financial markets

The buzz

Biogen
BIIB,
+1.04%
is soaring 43% in premarket after the pharmaceutical group and partner Eisai
4523,
+17.29%
said their experimental Alzheimer’s drug slowed the disease’s progression in a large, late-stage study. Eisai shares didn’t trade in Japan due to overwhelming buy orders. Biogen got at least one analyst upgrade.

Apple
AAPL,
+0.66%
stock is down after reportedly backing off plans to boost production of its latest iPhones this year due to weak demand. Shares of suppliers Taiwan Semi
2330,
-2.23%
and Hon Hai
2317,
-2.90%
took a hit in Asia.

And some Apple News users received an obscene and racist push notification Tuesday owing to a hack.

More Fed speakers are en route, with Chair Jerome Powell at 10:15 a.m. Eastern, followed by Gov. Michelle Bowman, Richmond Fed President Tom Barkin and Chicago Fed President Charles Evans. Data ahead includes advance trade in goods, followed by pending home sales.

Opinion: The Fed is missing a crucial turning point in its fight against inflation

The White House is reportingly considering an exit of Treasury Secretary Janet Yellen after the midterms.

Russia has declared victory over widely condemned elections in eastern Ukraine and stepped up nuclear threats. Also Moscow has threatened to cut off gas supplies to Europe via Ukraine, while the Nord Stream 1 pipeline continues to leak gas, a potential environmental disaster, after suspected sabotage.

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The chart

Reaction to the Bank of England’s bond buying move is pouring in and it makes for some dazzling charts.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

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