How Shifts in Consumer Spending and Credit Trends Impact Market Rotation

Current Trends in Consumer Spending

Consumers are shifting spending from goods to services and entertainment, reflecting a post-pandemic normalization. Spending in Europe is weaker compared to the US. High interest rates and inflation are pressuring home improvement demand, leading to a focus on smaller projects and value. Inflation has also driven product switching among consumers.

"In addition, business trends continue to reflect a normalization in spending patterns that first emerged more than 2 years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic." --- (TGT, earning call, 2025/Q1)

"As part of our guidance considerations, we also continue to keep an eye on consumer spending and macro level trends, specifically in Europe, where it appears to be a bit weaker relative to the US." --- (AMZN, earning call, 2024/Q1)

"The decrease in comparable customer transactions reflects the impact of macroeconomic factors, including the continued shift in consumer consumption trends away from goods and towards services and the impact of a high interest rate environment, pressuring home improvement demand." --- (HD, sec filing, 2024/Q1)

"So given these trends, as we look at home improvement spend in the near term, we think it's going to be focused more on smaller projects and looking for value, and we are working to position ourselves to be in that space as effectively as we can." --- (LOW, conference, 2024/06/26)

"Certainly, has been some inflation and put pressure on consumers. And what we've really noticed, this started in early 2022, was some conscious switching amongst products and you can see that pronounced suddenly in the store, but based on what people are having delivered and our flexibility, convenience and other things that we have improved over the last few years have made a difference on our ability to serve more of our existing customers more often with more units and then meet some new customers as well, which is great." --- (WMT, conference, 2024/06/11)

Macroeconomic Influences on Spending and Credit Trends

Macroeconomic conditions, including inflation, interest rates, and currency fluctuations, significantly impact consumer spending and credit trends, affecting pricing strategies and revenue across industries. Companies like Tesla, Apple, Netflix, and Microsoft are adapting to these influences, which shape their financial performance and operational decisions.

"These macroeconomic and industry trends have had, and will likely continue to have, an impact on the pricing of, and order rate for our vehicles, and in turn our operating margin." --- (TSLA, sec filing, 2024/Q2)

"While contending with these macroeconomic challenges, small business owners remain optimistic, with 93% feeling hopeful about the state of the economy." --- (AMZN, press release, 2024/05/01)

"Macroeconomic Conditions Macroeconomic conditions, including inflation, interest rates and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition." --- (AAPL, sec filing, 2024/Q2)

"Do you factor in macroeconomic issues and like just really help us better understand the price raising strategy?" --- (NFLX, conference, 2024/05/15)

"Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period." --- (MSFT, sec filing, 2024/Q3)

Sector-Specific Impacts of Spending and Credit Shifts

Consumer spending and credit shifts are impacting sectors differently. Coca-Cola and PepsiCo observe shifts towards value-oriented and at-home consumption due to lower-income consumer pressures. ExxonMobil highlights flexibility in resource allocation based on market demand, while Procter & Gamble notes a delay in shipment increases tied to consumption trends.

"It's certainly something we're monitoring. Overall, we are confident that our portfolio, coupled with our competitive advantages, provide us with a solid foundation to adapt to shifts we might see in the marketplace. As of now, we haven't yet seen any impact on our sales, and it's early to estimate any long term impact." --- (KO, event transcript, 2024/05/01)

"And if I could just sneak in from the at-home versus away-from-home consumption globally, as you see some of the weaker trends from the lower income consumer, are you seeing any acceleration in that shift, which might be helping your business on a global basis as well?" --- (PEP, earning call, 2024/Q1)

"It gives us a lot of optionality and flexibility, to the extent these other new markets work out and demand picks up and we see great opportunities, we can shift more resources into that space." --- (XOM, earning call, 2024/Q1)

"Once consumption increase, we see shipments increase. But we don't expect that to happen within the next 2 to 3 quarters." --- (PG, conference, 2024/06/04)

"Like the U.S., we see the lower income consumers remaining under pressure and at the margin slightly more shift towards value orientated channels, at home orientated channels and lesser the away from away from home, and clearly that's related to our focus, not just on the marketing and the innovation, but the RGM and affordability and driving premiumization." --- (KO, earning call, 2024/Q1)

Corporate Strategies in Response to Spending and Credit Shifts

Google leverages AI for agile ad solutions, Tesla adjusts pricing strategies in energy markets, Microsoft creates connected experiences across platforms, and Apple focuses on retail expansion to drive market momentum. These strategies reflect how companies adapt to shifts in consumer spending and credit trends.

"We've talked about how solutions like smart bidding use AI to predict future ad conversions and their value in helping businesses stay agile and responsive to rapid shifts in demand, and how products like Broad Match leverage LLMs to match ads to relevant searches and help advertisers respond to what millions of people are searching for." --- (GOOG, earning call, 2024/Q1)

"With the tight supply and the stationary storage, can you talk about your pricing strategy and how you're thinking about saturation and given geographies given that some of these larger systems are starting to shift wholesale power markets in a pretty meaningful way quickly?" --- (TSLA, earning call, 2024/Q2)

"And when you think about the strategy, it's very much we are in a fantastic position because we are able to orchestrate across all three of those circles, if you will, and create these connected experiences that can run from a PC experience or a mobile experience to what's happening in the apps that we deliver around the world in our productivity suite to what our customers can then go either extend from the productivity suite or build new for their own customer employee experiences." --- (MSFT, conference, 2024/05/29)

"How much of the momentum you're seeing would you associate with your sort of retail strategy in that market, retail expansion relative to maybe some of the supply change or the sort of manufacturing changes or strategy you've undergone or taken in that market itself." --- (AAPL, earning call, 2024/Q2)

"is continuing to benefit from a combination of strong watch time growth, viewer and advertiser innovation and a shift in brand advertising budgets from linear TV to YouTube." --- (GOOG, earning call, 2024/Q2)

Role of Government Policies in Shaping Trends

Government policies significantly shape economic trends by driving long-term economic success, supporting resilience through spending and immigration, and influencing credit trends via quantitative tightening. Additionally, policies promoting climate goals and sustainable financing are crucial in guiding market strategies and rotations.

"Simply put, policy and strategy matter and engagement makes the world a better place and we sure want the world to continue to improve. A comprehensive strategy to keep the world safe, not only for America, but for freedom and democracy entails 4 important pillars and we must succeed at each, maintain American leadership including military leadership, achieve long term economic success with their allies, strengthen our nation domestically and deepen focus resolve and addressing our most pressing challenges." --- (JPM, event transcript, 2024/05/21)

"This combination could slow growth. But that said, the US economy has proven to be resilient, supported by a number of factors, including government spending as well as labor force growth driven by above-trend levels of immigration." --- (GS, earning call, 2024/Q1)

"But deposits continue to be pretty much in a flat pace and that's in large part to the Federal Reserve's quantitative tightening, policies that's putting, pressure on deposits and and cash balances within the industry." --- (USB, conference, 2024/05/07)

"In response to climate related risks and opportunities, Bank of America committed to achieve net 0 greenhouse gas emissions by 2,050, including its financed emissions and joins the Net 0 Banking Alliance, which has recognized the critical importance of supportive public policies in enabling a timely and orderly transition.The Bank has also set a goal to mobilize $1,000,000,000,000 in financing for low carbon and sustainable business activities by 2,030." --- (BAC, event transcript, 2024/04/24)

"We support the transition to a low carbon economy. We engage with all of our clients to help them navigate toward these objectives.We report our progress in our annual ESG report, which can be found on morganstanley.com." --- (MS, event transcript, 2024/05/23)

Future Outlook and Predictions for Market Rotation

Market rotation will be influenced by increased consumer choice and competitive dynamics, as well as the integration of business and tech functions in Gen AI projects, indicating a shift towards more technologically driven sectors.

"But again, it's competitive everywhere. And in a way, it's good for the market in the sense that consumers just have more and more choice and different options." --- (NFLX, conference, 2024/05/15)

"This has been a kind of a divide in the market for forever. I do think that the Gen AI projects that I've seen our customers do, like there's always this deeply connected business and tech function working together." --- (MSFT, conference, 2024/05/29)