Storms clouds are gathering for consumer spending. Thirty-six stocks in the FTSE All-Share index from the retail, travel and leisure sectors have underperformed the FTSE All-Share’s 2% gain over the past three months, according to SharePad data. In comparison, only 18 stocks from these sectors beat the index over the same period.

The market is essentially saying that earnings prospects for many consumer-facing companies are becoming less attractive.

The Bank of England has made it perfectly clear that interest rates will have to go up soon, and we’re already feeling the pressures from a rising cost of living as inflation grows. Energy bills, food prices and general merchandise costs are shooting up.

Growth in consumer spending slowed to 3% between July and September, compared to 14% in the previous quarter, according to Nationwide’s analysis of more than 620 million transactions by   its customers.

Interestingly, it seems that households are being more cautious with their spare cash rather than not having any in the first place. The Sunday Times claims that Britons are ‘refusing to spend’, and says households are now saving double the pre-Covid norm, citing data from the Bank of England and Bank of America.

Households are busy paying down debts and we’re now hearing of big regrets from purchases made during the pandemic when everyone was bored. Aviva’s latest ‘How We Live’ report suggests that millions of people wish they hadn’t bothered buying items like hot tubs, musical instruments and bikes as they are now gathering dust at home. This regret could mean a lot of people think twice about what they buy in the near term.

Consumers are being told to shop early for Christmas if they want to avoid being disappointed because of stock shortages caused by supply chain issues. That could see many retailers do well in the coming weeks but then struggle over December if they can’t give customers what they want.

Fashion retailer Next (NXT) issued a cautious statement on 3 November when it said pent-up demand would continue to diminish, stock availability remains challenging, and price increases in essential items like fuel may moderate demand for more discretionary purchases.

In theory, the signals from Next and elsewhere would suggest that companies with more affordable products or services could do better than those selling big-ticket items. However, the market doesn’t seem to have the same view as the split between the different company types is not as clear-cut when looking at share price performance.

Over the past three months, trainer sellers and hotel operators have been among the best performing consumer-facing stocks. Among the worst have been pubs and restaurants. In the middle, with minimal share price gains or losses, have been gambling companies.

If you have any consumer-facing companies in your portfolio, watch the news flow carefully in case there are signs of a slowdown in demand as that could lead to nasty share price declines given the fragile backdrop.

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