We are entering the heart of earnings season, and it may be a wild one because Wall Street’s own outlook is quite poor.
The consensus Wall Street estimate for Q2 profits of the S&P 500 is that they will fall by 5.6% on a year-over-year basis. That would be, by the way, the fifth quarter in a row of falling corporate profits.
The retail industry is particularly vulnerable, as evidenced by a parade of retailers that previously reported disappointing results and/or are warning that the rest of the year will be even worse. In the month of May, retail sales shrunk by 3.9%, worsening from a 2.9% drop in April.
Moody's Investors Service not only lowered its estimates for 2016 retail sales, but also its outlook for the industry as a whole from “positive” to “stable”:
“We have scaled back our growth and outlook expectations for the US retail industry primarily due to weakness in four sub-sectors: apparel and footwear, discounters and warehouse clubs, department stores and office supplies.”
Bank of America, which knows a thing or two about credit card usage, said its aggregated data of Bank of America debit cards and credit cards showed particular weakness in four retail areas:
Department stores: down 4.0%
Teen/young adult stores: down 4.6%
Home goods: down 3.6%
Electronics: down 3.0%
There are many places to point your finger for the discouraging retail results, but one of the more surprising culprits may be that a growing number of Americans just can’t afford it.