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US consumer sentiment slipped to a 5-month low on October 9, near record lows, as frustration grew over higher costs. Walmart gained while other retailers fell. If the gloom turns into cutbacks, it could reach sellers of purchases households can delay, such as Home Depot and Best Buy.
Source: Reuters ↗
The University of Michigan index fell to 46.3 in preliminary October data from 48.1 in September, a small drop the survey director called 'little changed'. But she said buying conditions for durables "plummeted amid high prices and borrowing costs," and sentiment among lower-income consumers dropped steeply. The current-conditions index of 44.7 is the lowest on record. The expectations index rose to 47.3 from 46.3. Households face regular gasoline at $4.35 a gallon in the week to October 5 and inflation of 3.4% in August. Walmart (WMT) rose 0.7% on October 9 while Target (TGT) and McDonald's (MCD) slipped. Sentiment hit an all-time low of 44.8 in May, rebounded to 55.2 in July, then slid again. Through that swing Home Depot (HD) still grew revenue 6% and Best Buy (BBY) 4% in the quarter ended July 31, so the link from the survey to sales has been loose so far. The risk is that the 7.40% mortgage rate in the week to October 8 slows home sales and remodeling, and that shoppers delay electronics. How much they could lose is not yet known.
On October 9, Home Depot and Best Buy each fell 1.6%, Target and McDonald's fell 0.7%, and Walmart rose 0.7%. Investors are already treating Walmart as the shelter and optional spending as the weak spot.
Why that may be wrong
The October 9 drops in Home Depot and Best Buy only partly undid gains of 3.4% and 4.5% the trading day before. A survey shows up in actual sales only with a delay. If high mortgage rates and fuel costs persist, weaker home project and electronics spending could take a quarter or more to appear in reported results.
Gloomy surveys often fail to turn into real cutbacks while jobs stay plentiful. Unemployment was 4.2% in September and weekly jobless claims were 197,000 in the week to October 3. If government retail sales figures for September and October show steady spending on building materials and electronics, or if Home Depot and Best Buy report continued sales growth in their next quarterly results, the link would not be holding.
Sentiment surveys have often been gloomy while people kept spending, and unemployment of 4.2% with low jobless claims suggests incomes are holding up. Even after sentiment hit a record low in May, Home Depot grew revenue 6% and Best Buy 4% in the quarter ended July 31. Their rises the trading day before October 9 show investors were not convinced of a pullback, and a gloomy reading driven by gasoline and price worries may fade if fuel costs ease, as it did in June and July.
June 2022's reading of 50.0 was the record low for the University of Michigan sentiment index at the time, when gasoline passed $5 a gallon and inflation neared 9%. That record was broken in May 2026, when the index fell to 44.8, the lowest since the survey began in 1952. September's 48.1 was the second-lowest ever. The preliminary October 2026 index of 46.3 and September's 48.1 are both below the June 2022 reading. In mid-2022, Target and Walmart cut their profit forecasts as inventories piled up and shoppers shifted toward staples.
Sentiment slips to a 5-month low near record lows on higher costs, and investors favor Walmart over retailers that sell optional goods.
Squeezed households postpone big purchases they can delay, such as home projects and electronics.
With the mortgage rate at 7.40%, fewer home sales lead to less remodeling, which could slow Home Depot; delayed electronics purchases could slow Best Buy.
Earlier connections in the same sector that share a theme with this one.
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