Consumer

The resiliency of consumers through 2023 has surprised investors. However, consumer strength will fade into yearend as factors supporting growth in income and spending are waning. i.e., job gains are slowing, wage growth is decelerating, and excess savings are running out. Consumers are starting to feel the pressure from tighter monetary policy as financial obligations rise. Hence, as consumer spending decelerates, economic growth will slow into yearend. We confirm our underweight of the Consumer Discretionary sector.

Highlights The simple relationship between the unemployment rate and inflation, the traditional Phillips Curve, is not especially strong. But this perspective is archaic and ignores the lessons learned by central bankers during the 1960s and 1970s. Investors need to make three adjustments to…