The Stocks Most At Risk From Returning Of Student-Loan Payment

The post-holiday market expectations for Tuesday have been met with disappointment as the stock session begins on a predominantly weaker note. In addition to the typical sluggishness that follows a long weekend, the market sentiment is further dampened by China's rate moves falling short of expectations. Investors are eagerly awaiting the appearance of Fed Chairman Jerome Powell on Capitol Hill later this week, adding to the overall cautious mood.

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Morgan Stanley's Mike Wilson has reiterated his bearish stance, emphasizing that the market is transitioning from fear to greed. He believes that the increased participation of stocks in the S&P 500's upward movement is insufficient to sustain the index at its current levels.

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Wilson points out that investors are flocking to stocks just as fiscal support, which has been instrumental in bolstering consumer spending, diminishes. According to the bank's rates strategists, the support measures, including the Inflation Reduction Act and the student loan repayment moratorium, have provided approximately $1 trillion in aid over the past year.

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This leads us to the call of the day from Barclays analysts, led by Adrienne Yih. They anticipate a significant monthly blow to U.S. spending amounting to approximately $15.8 billion as the average student loan borrower faces a monthly payment of around $390 starting in the fall. The analysts consider these debt payments to be of "essential" nature and expect a corresponding reduction in discretionary spending.

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In essence, this represents an approximately 8% headwind to monthly personal income, affecting approximately 16% of the U.S. population and putting pressure on consumer discretionary and apparel stocks, according to Yih and the team.

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The Barclays analysts acknowledge that their estimate is conservative, as it only accounts for federal student debt, which constitutes 87.2% of the total student debt. They advise monitoring stocks with a consumer base that skews towards higher income, higher education, and the 18-34 age group.

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The greatest risk is anticipated for the first category, encompassing recent graduates and newly employed individuals, who are likely to reduce spending at companies like American Eagle Outfitters, Urban Outfitters, Figs, and Victoria's Secret.

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In the second category, there are perceived risks for higher-income, aspirational luxury retailers catering to the mentioned demographic. Stocks such as Capri Holding, Tapestry, Canada Goose, Nordstrom, Lululemon, and Ulta Beauty are deemed vulnerable.

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The least risk is identified among retailers targeting lower-income or less-educated customers, as well as potentially older shoppers. This group includes National Vision, Burlington Stores, Ross Stores, Old Navy at Gap, and TJX.

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