Consumer Spec - Afternoon Wrap
The SPX fades -1.21%, the NDX holds up best off -0.99%, the equal-weight RSP sheds 150bp/-1.50%, and the R2K ticks lower a contained 86bp/-0.86%.
Consumer traded poorly on a more hawkish Fed — Retail leads the downside off -2.91%, Discretionary -2.51%, and Staples -2.22%.
XRT looks like it will keep trading in a choppy/erratic dynamic that started early this year. Sector started to trade better past few weeks on a market that priced a resolution to the Iran conflict (which benefits yield sensistive sectors) but today hawkish Fed (check below) and a market pricing rate hikes does not help consumer or yield sensitive sectors (homebuilders, financials, etc).
Top 5 Consumer Sub-Sectors
Restaurants -0.67% — led by EAT +3.42%, TXRH +3.16%, and CAKE +3.07% (divergence: WING -7.79% sits on the loser side)
Hotels/Leisure -0.98% — led by H +2.46% and HGV +1.40% (divergence: MTN -4.94% weighs on the tape)
Travel -1.52% — led by TNL +1.05% and VIK +0.71%
Multiline/Department -1.57% — led by DDS +1.40%
Autos -1.75% — gains spread across the group, nothing standing out individually
Worst 5 Consumer Sub-Sectors
Auto Retailers -4.29% — pressured by KMX -9.00%, SAH -6.60%, and GPI -6.31% (also PAG -5.22%, AN -4.85%, ABG -4.85%, LAD -4.71% taking the dealer group lower)
Home Improvement/Furn -3.54% — dragged by RH -7.37%
Gaming/Casinos -3.14% — weighed down by FLUT -6.67%
Auto Components -2.65% — pressured by DRVN -6.06%
Internet/Catalog -2.55% — weakness broad-based across the group, no single name leading the move
ECONOMIC DATA:
VITALKNOWLEDGE TAKEAWAYS ON FED MEETING:
Hawkish on substance: 2026 dot jumped 40bp (now 1 hike penciled in), PCE revised up, and Warsh hammered price stability with unusual conviction (”unambiguous and unanimous”).
But the format shift was the real story: brief statement, zero forward guidance, and Warsh refused to engage with most questions Powell would have entertained. He also distanced himself from the SEP — didn’t contribute, and implied other officials lacked conviction in their dots.
Five task forces spinning up within weeks and concluding by year-end: communications, balance sheet, data sources, productivity/jobs, and the inflation framework. 2% target stays. “Ample reserves” language was a nod to those worried about aggressive QT.
Dovish offsets: Middle East-driven inflation (now resolved), strong productivity (AI disinflation channel), and labor described as in balance with workforce growth.
Takeaway: The price action isn’t really about the hawkish dot — it’s about regime uncertainty. Warsh is deliberately starving the market of the forward guidance it’s been trained on for a decade, and simultaneously signaling that five foundational pieces of Fed policy are under review through year-end. Until those task forces report out, the front end has no anchor and the curve has to price a wider distribution of outcomes. Expect elevated rates vol and a market that’s more reactive to data prints than Fedspeak — which, by Warsh’s own framing, is exactly the point.
RETAIL SALES
US retail sales report for May came in ahead of expectations (+0.9% M/M vs. the Street +0.6%) thanks to strength in autos (+1.2% M/M), furniture (+1%), gas stations (+3.4%), miscellaneous store retailers (+2.3%), and nonstore retailers (+1.5%), the latest indication that growth in the domestic economy remains on a solid footing (the upside retail sales number follows the solid May jobs report on Friday). In addition, pending home sales were robust for May too (+3.8% M/M vs. the Street +0.9%).
Evercore ISI on the report:
KEY QUOTES FROM KMX CALL:
On the consumer & credit
Jon Daniels (EVP, CarMax Auto Finance):
“The consumer, overall, I think you can see in the industry, certainly, they are continuing to be pressured by overall inflation.”
“If you look at delinquency rates among credit cards, auto, all of that, it is higher, but again, we feel like we have an excellent handle on that, and that’s captured.”
“This is our third quarter in a row where we really kind of hit the losses as expected.”
“Once again this quarter, credit losses were in line with our expectations.”
On demand & the cycle turn
Keith Barr (CEO):
“I think we’ve definitely turned the corner. When I joined CarMax, I saw the potential for growth in this company and how to become increasingly more competitive.”
“yes, I think we’ve turned the corner, and we’re very focused on the fact that this business should continue to grow market share on a sustainable basis going forward.”
“having the right car at the right price is definitely having a positive impact on our comp sales, and we expect that to continue throughout the remainder of the year.”
Enrique Mayor-Mora (CFO):
“This period we saw with strong demand, again, we were comping over last year, which was a positive 8% comp, and we still delivered, overall flat, flattish, slightly up-used unit growth.”
On ASPs & mix (consumer behavior)
Enrique Mayor-Mora:
“we were up to really two drivers. One was just overall acquisition costs were up in the marketplace, so that drove it. The second component was mix. We had a little less older cars in the quarter. Demand was strong around kind of younger cars, kind of our core offering.”
On EV / hybrid demand shift
Keith Barr:
“right now, for example, it’s only a small part of our business, but clearly, there’s a move towards hybrids and EVs from a number of consumers. And so our buy teams are out there focusing on making sure we’re efficiently buying hybrids and EVs to get those into our saleable inventory more quickly.”
On subprime / Tier 2 expansion
Jon Daniels:
“If you look at what we did from a Tier 2 perspective, we cited a year ago, we were 10% of the Tier 2 volume. This quarter, we are upwards of 25% of that volume, and we think that will continue to methodically grow over the next couple of years as we hit that midterm objective.”
“CAF was the largest Tier 2 lender during the quarter, further demonstrating the progress we are making in our full-spectrum efforts.”