“It seems like a fool’s errand to bet against the U.S. consumer, but it seems signs are fraying on the lower end of the consumer spectrum,” she said, adding that two-thirds of the $2.5 trillion in extra savings everyone is counting on to buffer consumer spending in a high-inflation world is held by the top 10% of households, meaning that the majority of people don’t have that buffer.
“And here’s the thing that’s wild: real wage growth has been negative for a year, which means that wages have been growing slower than prices for a year,” Dawson said.
She noted that consumers are opting for lower-priced items, and that the pull-forward into goods during the Covid period has ended.
“Does that necessarily get rotated into services?” she asked. “Not necessarily if people are tightening their belts, but I think it’s an opportunity to avoid some of the goods part of the economy.”
The defense industry, where leading names are trading at a 15% to 20% discount to the market, is one area that Dawson said she likes..
“There is something interesting there when you think of areas where you can hide out as staples have inflation problems,” she said. “Maybe there are opportunities in utilities and other areas. Defense seems like one area that’s not getting a lot of love.”