The middle class is struggling under the burden of elevated inflation and high interest rates, and Wall Street analysts are increasingly worried about a slowdown in consumer spending. Warning signs are only getting louder by the week.
We've detailed for months about the onset of a consumer slowdown:
Goldman Tells Top Clients To Start "Shorting The Middle-Income Consumer"
"Did Something Change?": Goldman Trading Desk Warns Hedge Funds Are Suddenly Dumping Consumer Stocks
Earlier today, shares of consumer products company Helen of Troy crashed after missing earnings expectations and slashed its full-year outlook on "softer consumer demand" and "shifts in consumer spending."
Fears of a slowdown also sparked selling in S&P 1500 Restaurants Index (S15REST) in late afternoon trading, down nearly 2%, marking its lowest intraday level since November 1. This decline negatively diverges S&P 500, which is being driven higher and higher by Mag7 and AI stocks.
This won't end well...
Here is a detailed list from Bloomberg featuring industry insights from Wall Street analysts on how fears of a consumer slowdown are pressuring restaurant stocks lower:
Piper Sandler, Brian Mullan
June traffic trends for casual dining, family dining, fine dining, and quick service establishments failed to show "any real evidence of noteworthy improvement" from "uninspiring" May, writes Mullan, who in his research note references data from Placer.ai, Blackbox, and Technomic
Says traffic in the quick service — or fast food — space has seemingly "gotten a bit worse" in 2Q vs 1Q
Gordon Haskett, Jeffrey Farmer
- Cut price target on fast-food giant McDonald's, writing that the initial customer response to the company's $5 meal deal has been "underwhelming"
Truist Securities, Jake Bartlett
- Cut price targets for McDonald's and Burger King owner Restaurant Brands International, saying their promotions don't appear to be boosting sales
KeyBanc, Eric Gonzalez
Writes that investor sentiment is "poor" on global fast food names and says "2Q will likely be one to forget"
"We believe several brands within our coverage universe are at risk of missing consensus same-store sales forecasts for the 2Q," including McDonald's, Burger King, Wendy's, Starbucks, KFC U.S. (owned by Yum! Brands), Papa Johns, and Dine Brands' Applebee's
Baird, David Tarantino
"Our most recent weekly private chain survey revealed overall comps below the averages for June/2Q," he writes
The data may include some "July 4 calendar noise," but Tarantino says the trend is "worth monitoring closely in upcoming weeks given our continued concerns about the economy and the possibility that some newer headwinds on consumer confidence have emerged amid an increasingly uncertain political backdrop"
As tighter monetary policy comes into play, with prior interest rate hikes filtering into the real economy in lags, consumer wallets will continue to tighten throughout the year. This will force consumers to make tough choices and reduce discretionary spending, such as dining out.
