Sequestration Could Decimate Consumer, Defense Stocks

With the fiscal cliff having been averted, “budget sequestration” has risen to prominence as the next Washington-made market threat. Investors have legitimate concerns that mandatory, across-the-board cuts in government spending will send the economy into recession with areas such as retail and defense being particularly hard hit. Should the sequestration go through, the U.S. Federal Government's budget will be slashed across the board. Agency budgets -- both Defense and non-Defense -- will be uniformly reduced. From a market perspective, the stocks most vulnerable might be those dependent on government defense contracts, and those exposed to consumer discretionary spending. The sequestration agreement calls for a mandatory 13 percent cut in defense programs and 9 percent from other programs. Spending cuts would also mean reduced unemployment benefits for over 3.8 million Americans and job losses for government employees, both of which will almost certainly cut into consumer spending and confidence levels.
Consumer spending levels could drop under sequestration
In his opposition to sequestration, President Obama has underscored the potential economic effects of slashed jobs and unemployment benefits. Under this scenatio, the ability for consumers to spend might cause a decline in corporate profits. Last week, shares of
WalmartWMT
dropped after internal company emails showing troublesome retail trends at the world's largest retailer were leaked. “In case you haven't seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Walmart's vice president of finance and logistics, said in a February 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.” Walmart, which is expected to release its quarterly results after the closing bell on Wednesday, could be one of the first companies to feel the sequestration squeeze if no deal is reached. Other retailers will undoubtedly be effected if economic and payroll growth slows and unemployment benefits get the axe. Companies with lower-end exposure such as Walmart and
CostcoCOST
may be the first to be effected, but any decline in consumer spending will eventually find its way to the bottom line of higher-end retailers such as
TiffanyTIF
and
CoachCOH
. While the consequences of sequestration are not fully clear, few are optimistic about its effects on near-term consumer spending. Economists doubt that the current rate of slow GDP growth would be able to offset a substantial pullback in government spending. If the stock market were to fall in anticipation of an economic slowdown and consumers began to re-trench once again, the economic effects could be severe.
Defense stocks could be hit as Department of Defense contracts dry up
Among the deepest cuts to government spending under the sequestration terms would be to the defense budget. Many defense stocks have been underperforming the market as a result of investor anxiety about spending cuts, and this trend could pick up momentum going forward if no deal is reached. Many defense companies depend on government largesse to drive growth and the gravy train could be coming to an end. Major government suppliers such as
RaytheonRTN
,
Lockheed-MartinLMT
and
Northrup-GrummanNOC
are exposed. All three of these stocks have been noticeable underperformers and are down on both a six-month basis and year-to-date -- time periods where the S&P 500 has recorded strong gains. Overall, it is not a particularly good time to be a global defense contractor, as the developed world is dealing with steep public sector debt and forced austerity.
Sequestration could put a stop to the market's rally
Overall, government budget cuts have the potential to hurt stocks across the board. With the S&P above 1500 and the Dow Jones Industrial Average just under 14,000, the U.S. market remains near its all-time highs. Yet, many
market forecasters
, such as Blackstone's Byron Wien and Marc Faber, have warned that the market is dangerously overbought. Sequestration might ultimately prove to be the catalyst needed for a market correction.
Posted In: President ObamasequestrationLong IdeasNewsShort IdeasPoliticsEventsGlobalEconomicsMarketsTrading IdeasGeneral

11 Best Black Friday Deals on Amazon

11 Best Black Friday Deals on Amazon

The best Black Friday deals from Amazon are still coming hard and fast because the holiday is not yet upon us and the mega-retailer prefers to keep consumers on the hook for as long as possible—spending as much money as possible. 

To that end, here are some of the best Black Friday deals from Amazon that you might want to consider today.

Calphalon 10-Piece Pots and Pans Set

Regular Price: $172

Sale Price: $138.88

Calphalon’s 10-Piece Pots and Pans Set is designed with stainless steel, stay-cool handles along with pour spouts. The nonstick surface is PFOA-free and built with hard-anodized aluminum that is both durable and conducts heat extremely well. The set includes 2 fry pans, a sauce pan with cover, saute pan with cover and large stock pot with cover.

Apple AirPods 2nd Generation

Regular Price: $144

Sale Price: $85.49

The 2nd Generation AirPods from Apple connect to all Apple devices and give you an enhanced listening experience. Plus, they come with a case that keeps them safe and allows you to charge them in a secure environment. With over 24 hours of battery life, access to Siri and easy setup, you can start listening to your favorite tunes or podcasts today.

Adidas Ultraboost 21 Running Shoes

Regular Price: $129.98

Sale Price: $89.98

The Adidas Women’s Ultraboost 21 running shoe is perfect for anyone who likes a short run, maybe a 5K, half marathon or more. Coming in several colors and styles, you can slip these shoes on, enjoy the cushioned outsole, sink into the supple insole and secure laces.

Ninja AF101 Air Fryer

Regular Price: $129.99

Sale Price: $97.83

The Ninja AF101 Air Fryer allows you to crisp, roast, reheat and even dehydrate food products faster and cheaper than ever before. It has a 4-quart capacity and offers a wide temperature range along with several time settings so that you can customize each dish to your needs. Plus, all the parts are dishwasher safe.

Beats Solo3 Wireless On-Ear Headphones

Regular Price: $199.95

Sale Price: $99

Beats by Dr. Dre are among the best headphones on the market, and the Solo3 Wireless On-Ear Headphones include the Apple W1 chip, Class 1 Bluetooth and 40 hours of battery time. These headphones even have a built-in microphone and offer an adjustable fit so that you can be comfortable whether you’re listening to an Android or iOS device.

Hoover Power Scrub Deluxe Carpet Cleaner

Regular Price: $198.98

Sale Price: $175.98

The Hoover Power Scrub Deluxe Carpet Cleaner allows you to keep your home spotless and clean up after your pets. The cleaner comes with the Hoover Paws and Claws Deep shampoo and a storage mat to keep the floor dry once it’s put away.

LG CordZero Auto Empty Cordless Stick Vacuum

Regular Price: $999.00

Sale Price: $851.71

The LG CordZero Auto Empty Cordless Stick Vacuum and Wet Mop All in One Tower is designed to work in homes with several pets or children and clean up all the messes that life brings. The battery lasts up to 2 hours, and there’s an extra removable battery that gives you even more cleaning time and power.

Breville Fresh and Furious Blender

Regular Price: $278.60

Sale Price: $199.95

Breville, a top name in blenders and juicers, offers the Fresh and Furious Blender, featuring 50-ounce capacity, Vac Q technology, pre-programmed cycles, LCD display and lid with pull ring. With the Fresh and Furious Blender, you can make everything from a smoothie to a soup and everything in between.

Hot Tools Professional 2000 Turbo Ionic Hair Dryer

Regular Price: $89.99

Sale Price: $55.63

The Hot Tools Professional 2000 Turbo Ionic Hair Dryer is designed for professional use, but it works perfectly in the home. With 1875 watts of power, 6 heat and speed settings and a lightweight design, you can easily style your hair and utilize the diffuser, cut back on the frizz and stretch the 8 ft cord for maximum functionality.

Columbia Heavenly Long Hooded Jacket

Regular Price: $160

Sale Price: $97.38

The Heavenly Long Hooded Jacket from Columbia is designed to be light for everyday use, but it’s heavy enough to protect you from the cold. The plush fleece lining, security pocket, water resistant fabric, 2-way zipper, and zippered hand pockets make the jacket both protective and functional.

ConAir InfinitiPro Hair Dryer

Regular Price: $49.99

Sale Price: $29.99

ConAir is one of the biggest names in hair and beauty, and the InfinitPro is an 1875 watt hair dryer designed for professionals with ceramic technology. The dryer comes with a diffuser and concentrator, and it allows you to blow out your hair just the way they would at the salon.

Deals the Experts Are Hoping For

Experts believe that Amazon’s Black Friday sale could linger for quite some time. It all started with the Prime Early Access sale on October 11 and 12. Previously, Amazon has offered the “Epic Deals” sale that ran through late October. 

This is to say that any sale could come up at any time. 

Even so, those monitoring Amazon are looking forward to a few potential deals, including:

  • Apple Watch
  • AirPods (any generation)
  • MacBook Pro
  • Large, underpriced TVs
  • Amazon Echo
  • More small home appliances (Dyson or Shark vacuums, Instant Pots, etc.) 

While these predictions are based on last year’s Amazon Black Friday Sale, it’s important to remember that most Black Friday sales are fairly consistent and push the products that are most likely to sell.

 

Featured image sourced from Shutterstock

Posted In: Partner ContentGeneral