Today’s sluggish 0.2% August retail sales increased the likelihood of a hold by the RBA next week, as consumers continue to rein in spending as the impact of rate hikes hold. But this was only part of the full picture, with today’s National Accounts Data also revealing that household deposit accounts saw the first quarterly decline since 2007 — signalling that a per-capita recession is becoming the dominant economic narrative for the local market. While inflation will remain a concern for investors for some time, it’s likely we’ll see attention shift to the rate of economic growth as we roll into 2024.
Given the backdrop, many investors will be positioning portfolios to weather weak consumer spending. Naturally, the outlook for discretionary retail stocks appears challenging, yet even consumer staples retailers such as Woolworths and Coles have also entered into a downtrend, as the impact of increasing theft and higher staffing costs hit the bottom line. Retailers that are geared towards the cheaper end of the market are appearing to benefit, with The Reject Shop (ASX: TRS) seeing a 35% YTD increase, and stronger momentum when compared to most retail stocks.
Other sectors with defensive characteristics could also be an attractive option. Insurance companies weathered 2023 better than most, with AUB Group (ASX:AUB) being up over 30% and QBE Insurance Group (ASX:QBE) more than 20%. That said, it’s particularly important to look for companies with a reliable income and strong balance sheet in the current environment, as they are far more likely to show resilience.
By Stake Market Analyst, Megan Stals