Recently, the retail giant$Walmart Inc (WMT.US) $和$Target Corp (TGT.US) $After the announcement of the results, share prices recorded their biggest one-day decline in nearly 35 years, which is frightening. Behind this sharp fall may suggest a sharp decline in investor confidence in the US consumer market.Consumption is the main driving force of the US economy, if consumption is weak, the probability of the US economy falling into recession will greatly increase, which in turn will inevitably affect investors' sentiment towards the stock market.The U. S. stock market has plummeted several times since the start of the year, in many cases based on fears of an economic slowdown. This article will explore the future consumption prospects of the United States and the possibility of the economy falling into a recession crisis, so as to provide readers with an insight into the future trend of US stocks.

Retail sales figures remain strong

Zhitong Finance has reported that the latest retail sales data released by the US Department of Commerce yesterday showed that retail sales had achieved positive month-on-month growth for four consecutive months. Overall US retail sales rose 0.9 per cent in April from a month earlier, in line with market expectations. Year-on-year growth rose 8.2%, while year-on-year growth slowed, while March growth was revised upward to 1.4%. This largely shows that consumer demand for goods remains resilient despite high inflation ravaging the country.

It is important to note that while the month-on-month increase in retail sales may reflect strong demand for goods, it may also be the result of higher consumer prices, as the retail sales figures are not adjusted for inflation.

Zhitong Financial APP learned that retail sales figures for April were still the highest this year, near record levels, adjusted for inflation, according to actual retail sales forecasts released by the St. Louis Fed.

The data, which was constructed by the St. Louis Fed after adjusting for the consumer price index (CPI) for all US cities, is predictive because the latest retail sales figures released for the current period have not been revised. Although it is predictive, the historical data show that the final revised data will not be much different from the predicted data.

Wells Fargo & Co's customers' credit card spending remained very strong in the last quarter, ranking second in the past five quarters, second only to the fourth quarter of last year, according to financial data released in April. You know, it was in March that the US CPI hit a 40-year high of 8.5 per cent. In addition, the fourth quarter of last year covered the important point of the Christmas shopping season, and consumer spending tends to be the strongest period of the year.

Statistics from other major Wall Street banks also show that US consumers are still swiping their credit cards in the first quarter, an increase that is still significant compared with last year's loose monetary policy, indicating that consumer spending continues to be strong.

Bank of America Corporation CEO Brian Moynihan said after the announcement of the results: "in March 2022, compared with the same period last year, consumer spending increased significantly compared with the same period last year, but more importantly, in the first few weeks of April, this figure even reached an astonishing 18%, indicating that the pace of consumer spending is accelerating again." "

Why is their purchasing power so powerful?

From the data, we can see that the purchasing power of American consumers is still strong, in fact, it is inseparable from the strong disposable income of American consumers.When the COVID-19 epidemic broke out in 2020, the Federal Reserve "opened the floodgates" to stimulate the market economy, which undoubtedly made the "wealth" of American consumers more solid.

U. S. personal disposable income as of March was at its highest level in a year (in billions of dollars), according to Tradingeconomics statistics. For an extended period of time, it is also near the historically high level. Of course, the data for the current period cannot be compared with the "flood" period of 2020-2021.

Ricard Curtin, director of research at the University of Michigan, said: "Consumer spending is still strong, thanks to rising wages and American residents' confidence in jobs. Us non-farm data for April showed that US wage growth remained high, with an average monthly hourly rate of 0.3 per cent and an annual rate of 5.5 per cent. Statistics from Trading Economics show that American hourly wages were at an all-time high in April.

Income levels and wage growth remain high, giving US consumers the confidence to swipe credit cards, a trend reflected in economic indicators that the credit pulse index continues to pick up. Credit pulse is the proportion of new credit to GDP.

There is a crisis behind the consumption boom: the Fed's interest rate hike has already dampened consumer expectations.

Why is retail sales so important? From an economic point of view, the data is one of the important indicators to reflect the demand and ability of consumers. More importantly, 70% of the GDP in the United States is driven by consumption. Therefore, the data plays a very important role in judging the current situation and prospects of the US economy. From the perspective of equity investors, the data can affect market expectations of the U. S. economy, and then affect the trend of the market.

Of course, the most important reason why the data has been so popular recently is undoubtedly the widespread belief among investors that it provides insight into the direction of the Fed's monetary policy.Inflation in the United States has repeatedly hit record highs this year, and during this period, if retail sales remain strong, market expectations of a sharp increase in interest rates by the Federal Reserve may be strengthened, thus affecting the earnings expectations of US companies. As a result, some analysts believe that the adjustment of US stocks may continue.

Under the pressure of high inflation, senior Fed officials are still very tough on big interest rate hikes, and strong retail sales data so far this year have reinforced signs of overheated US demand. this may make the Fed more determined to implement a "hawkish" monetary policy, allowing the Fed to raise interest rates by 50 basis points in each of the next two meetings, and even continue to be hawkish.

Under the pressure of multiple adverse factors, such as persistently high inflation and the firm attitude of the Federal Reserve towards "water collection", do American consumers really not have a high inflation rate of care? Are consumer confidence and expectations for the future macro environment as strong as the data?

According to the latest survey data from Gallup, a well-known market research company, 17% of American residents believe that "inflation" is the most important issue in the United States.It is the highest statistical ratio for Gallup since 1985.However, these figures are still well below the extremely high percentage of 52 per cent reached in the last "inflation era" in the early 1980s, and further forward, the US economy experienced a period of "stagflation" in the 1970s.

The American Counsellor's consumer confidence index showed that it fell slightly in April after rising in March. The index now stands at 107.3, down from 107.6 in March and has fallen continuously since its recent peak in 2021, roughly where it was during the US recession in 2020.

The current situation index (consumers' assessment of current business and labor market conditions) compiled by the American Consultative Council fell to 152.6 from 153.8 last month. The expectation index, which reflects consumers' outlook for the macro environment such as income, business and the labor market over the next six months or so, continues to hover near recent lows.

Another major authority confidence index, the University of Michigan Consumer confidence Index, and the University of Michigan Consumer expectation Index are more pessimistic, both at relatively low levels in the past 20 years or so.

The IBD/TIPP economic optimism index, which measures market optimism about the US macro economy, is near its lowest level in nearly 20 years.The index fell from 45.5 in April to 41.2 in May 2022, just above the eight-year low of 41 in March.

From the above consumer confidence and expectation data, we can see that although retail sales have increased for four months in a row, consumer confidence and expectations for the future have been declining.Us consumer sentiment has long been suppressed under the pressure of high inflation and widespread expectations of higher interest rates, which is reflected in the quantitative data.

So why is consumer spending still strong in the first quarter and April? "as these prices rise, the pain of consumers will only increase," said Ricard Curtin, director of research at the University of Michigan. But so far, consumers seem to be thinking: if I don't buy it now, I will only spend more money in the future. So consumers are buying in a planned way, which is a spontaneous cycle. "there is also the possibility that consumers want to run out of credit lines in a still relatively low interest rate environment, as borrowing costs will only get higher and higher under interest rate hikes in the future. In addition, as mentioned above, since the COVID-19 epidemic, the personal disposable income of American residents has been growing, not until the bottom of their savings.

There is a high probability of a slowdown in US economic growth.

From a retail giant$Target Corp (TGT.US) $According to the latest results released today, although total revenue exceeded market expectations, earnings per share were only $2.17, well below market expectations of $3.07, compared with $4.20 in the same period last year. Target Corp expects its operating margin to be significantly lower (high or low) than the 5.3% operating margin in the first quarter, with the stock plummeting more than 24% before trading. If the stock closed at that level on Wednesday, it would be the biggest one-day drop in 35 years. The stock fell as much as 32.96% on October 19, 1987, the famous "Black Monday" in the history of US stocks, and the Dow Jones Industrial average plunged 22.6% on that day.

Global retail giant$Walmart Inc (WMT.US) $Share prices fell more than 10 per cent yesterday, the biggest drop since October 16, 1987. Today's pre-market decline continued, falling more than 2 per cent as of press release, also because the latest profit level was lower than expected and sharply lowered this year's earnings per share guidance.

Similar to Target Corp, Walmart Inc also has the pressure of high inventory and high cost. the profits of the two retail giants are lower than expected, reflecting not only the sharp increase in operating costs in all aspects of high inflation.Hidden beneath the surface.It is the part of the revenue increase passed on by the retail giants to consumers through higher prices that is not enough to offset operating costs.。Even so in the first quarter, in the future, under the heavy pressure of the Fed raising interest rates by 50 basis points and persistently high inflation, consumer spending may not grow as astonishingly as it did in the first quarter.As a result, the market began to sell retail stocks, and this wave of valuations may not be temporary.

Why is it difficult to see the astonishing growth of US consumer spending in the first quarter?Statistics on the year-on-year increase in same-store sales of about 9000 large general retail stores in the United StatesRed Book Index (Redbook Index)The growth rate has slowed significantly in recent months and has continued to decline this year, with the index taking the weekly cycle as the statistical cycle.

Because the index covers a wide range of samples and is concentrated in the retail sector where consumers are most concentrated.Retail sales can better reflect the changes in the behavior of the average American consumer than retail sales.As a result, the index is one of the retail indices that Wall Street pays most attention to. The index provides early warning of changes in consumer spending, which in turn affects the business cycle, industry cycle rotation, inflation and even interest rates. Judging from the current trend of the index, the growth of consumer spending has begun to slow significantly.

What is the market expectation of retail sales that investors are familiar with? The trend of retail sales can often see the trend of the US economy. According to the market expectations of US inflation and other indicators, the financial data statistics and forecasting platform Trading Economics, combined with econometric models, predicts that retail sales for the rest of this year will be in a downward trend compared with the same period last year. Because GDP statistics are usually based on year-on-year statistics, the year-on-year data are more statistically significant.

Retail sales data can often predict the US GDP. Since the growth rate of consumer carriages, which accounts for 80% of GDP7-80%, has declined, what is the market forecast for US GDP? Economist Goldman Sachs Group lowered his forecast for US economic growth this year and next to reflect the financial market shocks brought about by the Federal Reserve's tightening of monetary policy.Goldman Sachs Group economists said they now expect the US economy to grow 2.4 per cent this year and 1.6 per cent in 2023, down from previous forecasts of 2.6 per cent and 2.2 per cent.

Combined with global macro models and analyst expectations, Trading Economics forecast data show that US GDP growth will be about 2.1% by the end of this quarter, and in the long run, it is expected to reach 2% by the first quarter of 2023, which is not far from Goldman Sachs Group's expectations.

From the general expectation of the market, the slowdown of US economic growth is basically a high probability event, but there are different opinions on whether the US economy will fall into recession.Tesla, Inc. CEO Musk said the US economy was "very likely" in recession and warned companies to focus on costs and cash flow. Before Goldman Sachs, CEO Blankfein said the risk of recession in the United States is "very high." Roger Ferguson, a former Fed governor, said a recession in the US economy was almost inevitable in 2023 and that the probability was "definitely more than 50 per cent". According to Deutsche Bank, its Alphabet Inc-CL C search index of Americans for the keyword "recession" has soared recently.

U. S. Treasury Secretary Yellen does not expect a recession in the United States, saying the stock market does not reflect the potential strength of the economy. David Rubenstein, co-founder of the Carlyle Group, believes that although US economic growth is hampered by the COVID-19 epidemic, the US will not fall into recession, and inflation is expected to fall back soon later this year. Daley, president of the San Francisco Fed, said there must be a series of interest rate hikes in the coming months, which could plunge the US economy into a mild recession, but she pointed out that this was not her basic expectation.