From Scott Feiler, Goldman consumer specialist
1. Consumer Sentiment - Choppy: The best way to describe consumer sentiment, trends, and price action in the space is “choppy.” Unlike tech (higher) or energy (lower), there has not been a consistent sentiment or trading pattern to emerge in consumer since March. We had negativity in April, some hope around trends and easing compares in May and now within the last 2 days, have picked back up caution again around the June trendline in consumer. I remain of the belief that consumers will remain somewhat steady (neither great, nor horrible), given easier summer compares and the strong jobs available-jobs seeker surplus (well into the 7 figures). However, it simply does not feel like the group will trade in a single direction consistently like we are seeing in other sectors.
2. Pain Trade vs Catch-up Trade? Despite very strong fundamentals still in the builders (LEN last week and most looking for a strong print from KBH tonight), we have picked up incremental frustration from investors that housing/builder ETF’s are within 1% of all-time high. That caution seems to mainly be a view on valuation, the chart and interest rates and how things could slow, vs a realization that trends are quite strong in the moment. On the flip side, in the rush to own beaten up cyclicals the last 3 weeks (vs selling defensives, see chart below), autos (mainly OEM’s) were the focal point from most of our inbounds. This was mainly centered on valuation, sentiment (short interest at both F & GM back to 1 -year highs) and the view that SAAR and fundamentals have continued to be strong. Our conversations make us think at these levels, investors would view housing higher (from these levels) as a pain trade, with autos higher as the catch-up trade if cyclicals do work into the summer, despite higher for longer rates.
