Elevated U.S. interest rates are pressuring the U.S. retail sector, where shares of many companies have been dented by months of tight monetary policy while a select few have soared.
The S&P 500 Consumer Discretionary Distribution & Retail index is up nearly 14% this year, roughly keeping pace with the S&P 500’s year-to-date gain. Much of the sector’s strength, however, has been concentrated in a small group of stocks, including heavyweight Amazon.com (NASDAQ:AMZN), which is up nearly 21% this year.
Meanwhile, shares of companies focused on lower-income consumers have struggled, in-part because buyers in that segment have been more affected by elevated interest rates, analysts said. Among the biggest laggards are shares of Dollar Tree (NASDAQ:DLTR), which are down nearly 27% year-to-date and Dollar General (NYSE:DG), which have fallen nearly 9%.
The retail sector is one of several areas of the economy – in addition to real estate and consumer staples – that have been pressured by elevated rates. The Federal Reserve earlier this week reiterated that it needs to see more evidence of cooling inflation before lowering borrowing costs.
“The lower to mid-income segment is getting squeezed because of gas prices and groceries,” said Greg Halter, director of research at Carnegie Investment Counsel. “They feel bad even though the economy is doing well.”
The consumer will be in focus next week when the U.S. reports retail sales data on Tuesday. Analysts polled by Reuters expect retail sales to have grown by 0.2% in May. Weaker-than-expected results – following data earlier this week showing encouraging progress on inflation – could bolster the case for the Fed to ease rates sooner rather than later.
