Student loan payments are coming back – and these are the stocks that are most exposed
High expectations from the market for the Tuesday after a long summer holiday weekend are destined for disappointment. Aside from the hazy, lazy effect, China’s less-than-expected rate moves are helping sentiment as investors await Fed Chairman Jerome Powell’s appearance on Capitol Hill later this week.
The latest bearish remarks from Morgan Stanley’s Mike Wilson are in, and he’s doubling down on all his ferocity. He sees a market moving from fear to greed, citing the increased participation of stocks in the S&P 500
SPX
push higher is not enough to support the index at these levels.
Read: Wall Street̵[ads1]7;s leading bear is having some self-doubt. Here’s what worries Morgan Stanley’s Mike Wilson now
One point Wilson makes is that investors are rushing into stocks just as financial support, which helps hold up consumer spending, is fading. The bank’s fixed-income strategists estimate that it has accounted for $1 trillion in aid over the past 12 months — measures including the Inflation Reduction Act and the student loan repayment moratorium.
That brings us to ours today’s conversation from a team of Barclays analysts, led by Adrienne Yih, who see a looming monthly burden of $15.8 billion in the U.S., as the average student loan holder faces a monthly payment of about $390 starting in the fall.
“For most, this will be the first time to make payments since the early days of the pandemic in March 2020. We consider the incremental ‘essential’ nature of the debt payments likely to reduce discretionary spending by roughly the same amount,” Yih and team said.
In short, it would represent a roughly 8% headwind to monthly personal income, affecting 16% of the US population and adding pressure to consumer discretionary and apparel stocks, they say.
The Barclays analysts say their monthly estimate is on the conservative side, given that it only takes into account federal student debt, which is 87.2% of total student debt.
As for the stocks, the analysts recommend looking for those with a consumer base that “skews toward higher income, higher education and in the 18- to 34-year-old.”
The biggest risk will hit the first bucket – recent graduates, newly employed people – who are likely to spend less on names like American Eagle Outfitters
AEO,
Urban Outfitters
URBAN,
fig
fig
and Victoria’s Secret
VSCO.
In the other bucket, they see some risks to higher-income, ambitious luxury retailers selling to that group, with stocks including Capri Holding
CPRI,
The wallpaper
TPR,
Canada Goose
GOOS,
Nordstrom
JWN,
Lululemon
LULU
and Ulta Beauty
ULTA
all at risk.
The least risk is seen for those retailers with a customer base that targets lower income or lower education levels, or are potentially older buyers. These stocks include National Vision
EYE,
Burlington stores
BURL,
Ross Stores
PRAISED
Old Navy at Gap
GPS
and TJX
TJX.
The markets
Stock futures
ES00
YM00
NQ00
tipping south and bond yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
are steady. Hong Kong shares
HK:HSI
led Asia to lower lending rate cuts in China disappointed some.
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The uproar
China cut benchmark lending rates for the first time since August 2022. Goldman Sachs, which has downgraded China’s growth, noted that some had expected bigger moves. China ADRs such as Xpeng
XPEV
and Nine
NINE
are down 5% and 3% respectively.
Ali Baba
BABA
HK:1060
has shaken up its management, with Daniel Zhang stepping down as chairman and CEO but continuing to lead the cloud business, which is expected to be spun off. The share is down more than 2 percent.
Dice Therapeutics stock
DICE
is up 37% in the premarket on news that the biopharmaceutical will be acquired by Eli Lilly
LLY.
Cano Health stock
CANO
is up 21% after the primary care provider said its chief executive has agreed to step down.
FedEx
FDX
results are due on Tuesday and could indicate whether consumers are buying more things. La-Z-boy
LZB
will also report — both after completion.
Warren Buffett’s Berkshire Hathaway
BRK
BRK
has again increased its holdings in five Japanese trading companies – Mitsubishi
JP:8058,
Mitsui
JP:8031,
Itochu
JP:8001,
Marubeni
JP:8002
and Sumitomo
JP:8053
– to more than 8.5% each
Novo Nordisk’s
DK: NEW
NGOs
hit Wegovy weight loss drug is set to sell over $4 billion this year in the U.S. alone, Citigroup says.
Housing starts for May take place at 8:30 a.m., with New York President John Williams speaking at 11:45 a.m. The big spotlight this week will fall on Powell’s two days of testimony on Capitol Hill starting Wednesday.
The best from the web
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The bond market has already moved on from losing $17 billion on Credit Suisse securities.
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The diagram
Another group of Barclays analysts, led by Venu Krishna, looked at the narrow lead of the S&P 500 rally so far this year via the so-called “leadership gap” – the spread between S&P 500 returns and returns without the contribution of the top 10 stocks.
Over the past three decades, leadership has only been as narrow as it is today in 2000 and 2020, and both times the top 10 stocks driving the rally have reversed against the broader market in the short term, they note. This lead gap has increased to more than 7%, and since the mid-1990s it has only occurred in 2020 and 2020.
Read: This incredible chart shows the close relationship between the S&P 500 and Fed liquidity
The tigers
These were the most searched tickers on MarketWatch from 06.00
Random reading
New study shows that three former Dutch rulers obtained 596 million dollars from slavery
Not the singers. The Thompson Twins are probably the best NBA draft picks.
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