Investing.com - Consumer discretionary stocks could face increased downward momentum as markets rapidly price in a tariff-fueled U.S. recession, according to analysts at UBS.
In a note to clients, the strategists led by Sean Simonds argued that these stocks, which partly rely on solid consumer spending on nonessential items, have underperformed recently as investors "push quickly" in a recessionary direction.
Economists have warned that higher tariffs could fuel inflationary pressures and weigh on economic activity, while many businesses have flagged that the uncertainty around the levies is making it difficult to set investment plans.
Markets have gyrated sharply as traders race to keep up with Trump’s erratic tariffs, while the president’s recent suggestion that he could fire Fed Chair Jerome Powell for not quickly slashing interest rates has further exacerbated investors’ concerns.
This week, stocks fell sharply on Monday, only to bounce back over the next two days, after Trump appeared to be willing to engage in trade discussions with China and seemed to back away from his threat to oust Powell.
Against this backdrop, the UBS analysts flagged that consumer discretionary industries, such as autos and durable goods, stand to be most directly impacted by the levies and are seeing the largest downgrades on anticipated earnings.
"Sales and earnings expectations [...] are moving lower in virtually every sector," the analysts wrote. "Tariff sensitive stocks are being aggressively repriced, now down 20% relative to the market."
UBS data also shows that while there have been ongoing extended long positions in the U.S. market, a "significant rotation" from cyclical consumer stocks to more defensive sectors like staples is happening as well.
Against this backdrop, some of the top names cited by UBS are semiconductor group Broadcom (NASDAQ:AVGO), financial services firm Virtu, and software player Fortinet (NASDAQ:FTNT). Among the bottom-ranked are retailer Kohl’s (NYSE:KSS), chipmaker Intel (NASDAQ:INTC), and carrier JetBlue.