Federal Reserve Hikes Interest Rates, Hurts Consumers and Retail Stocks

The Fed has never raised the target interest rate four times in a row with a 75 basis point each time – till today. They still need to beat inflation.

Today, they harmed retail stocks, hurt consumers, and decreased real estate values.

Granny Retail was gaining strength and displaying demonstrated Triple Play momentum leadership and positive price action above until the Fed announced their news. This will put retailers and consumers under stress.

retail sector etf xrt trading decline federal reserve rate hike chart november 2

On Tuesday, retailers heavily sold off, with the rest of the market. Granny Retail (XRT), or SPDR S&P Retail ETF, declined 4% and crossed the 50-day moving average.

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I will evaluate how the hike impacts consumer behavior by looking at Granny Retail (XRT), will address elevated levels of consumer debt, and dig more into the components of CPI.

Click the link to learn more about CPI, consumer spending, and actionable ETF levels.

There is uncertainty about how effective these rate hikes reduce inflation since they are still far from 2%. The Economic data is mixed. 

Corporate Earnings are holding steady for now; however, given the uncertain economic environment, investors should exercise risk governance.

Shelter comprises one-third of CPI, which was 6.6% last month. Rents will continue rising higher while food and energy remain elevated and are also large CPI weightings.

Mortgage rates have risen to 7% from 3.5%, making it impossible for some families to purchase property.

People who cannot afford to buy must live somewhere, which will continue to put pressure on rental prices.

Additionally, the US savings rate is also at 3%-the lowest in the last 15 years. Consumers are tapping savings aggressively, charging credit cards, running up debts, and all while real income growth stagnates.

Total consumer credit outstanding in the U.S. has hit record levels shown below.

us consumer debt total by year increasing rising chart year 2022

Total consumer credit outstanding in the United States from the 3rd quarter 2006 to the 2nd quarter 2022.

Property owners are also accessing home equity credit at variable loan rates. 

There is little evidence to support the Fed’s claim that it is making major progress on fighting inflation.

Stock Market ETFs Trading Analysis and Summary:

S&P 500 (SPY) 370 support and 377 resistance

Russell 2000 (IWM) 174 support and 181 resistance

Dow (DIA) 318 support and 324 resistance

Nasdaq (QQQ) 261 support and 269 resistance

KRE (Regional Banks) 62 support and 65 resistance; same as before

SMH (Semiconductors) 182 support and 189 resistance

IYT (Transportation) 204 support and 210 resistance

IBB (Biotechnology) 127 support and 132 first resistance; same as before

XRT (Retail) 61 support and 65 resistance; same as before

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.