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Morgan Stanley analysts indicate that consumer optimism seems to be on the rise as the US presidential election approaches. The AlphaWise US Consumer Pulse Survey revealed Americans have a "significantly more constructive" six-month outlook since May, while the University of Michigan’s sentiment index increased for the second month in a row in September. This suggests a "more upbeat consumer," according to the analysts.
Stable Earnings Outlook for Textile Retailers
Although textile retailers face headwinds in the latter half of 2024, Morgan Stanley sees limited risk to Wall Street’s earnings estimates. Historically, "Softline" stocks — which include apparel and textile companies — have fared well during election seasons. This could be due to their stronger fundamentals compared to market concerns during this period.
Mall Foot Traffic May Not Signal a Downturn
While foot traffic in malls typically slows from September to December in election years, this does not necessarily indicate a "fundamental deterioration" for textile retailers’ returns. The analysts advise caution in interpreting high-frequency demand data, as it may overstate the potential impact on the sector's fundamentals.
Impact of Election on Corporate Tax Policies
The analysts' report coincides with a tight race between Democratic candidate Kamala Harris and Republican Donald Trump, with national polls showing a slight lead for Harris but tight contests in swing states. Strategists highlight that both candidates' tax plans could significantly affect corporate returns. Trump proposes corporate tax cuts that could boost 2025 profits by approximately 5%, while Harris’s plan to increase taxes may reduce earnings by about 3%.
Textile Firms’ Exposure to Tax Changes
According to the report, Burlington Stores Inc. (NYSE:BURL), Foot Locker Inc. (NYSE:FL), and Nordstrom Inc. (NYSE:JWN) are among the textile retailers most affected by potential changes to the corporate tax rate. In contrast, companies such as Lululemon Athletica Inc. (NASDAQ:LULU), Nike Inc. (NYSE:NKE), and Skechers USA Inc. (NYSE:SKX) are expected to be less impacted by such changes.
