Student-loan payments are coming back — and these are the stocks most at risk

The latest bearish remarks from Morgan Stanley’s Mike Wilson are in and he is doubling down on all his grimness. He sees a market flipping from fear to greed and says the increased participation of stocks in the S&P 500’s
SPX
push higher isn’t enough to support the index at these levels.

Read: Wall Street’s leading bear is doubting himself, a little. Here’s what is worrying Morgan Stanley’s Mike Wilson now

One point Wilson makes is that investors are rushing into stocks just as fiscal support, helping to hold up consumer spending, fades. The bank’s rates strategists estimate that has amounted to $1 trillion in aid over the past 12 months — measures including the Inflation Reduction Act and those student-loan repayment moratorium.

That brings us to our call of the day from a team of Barclays analysts, led by Adrienne Yih who see about an impending $15.8 billion monthly hit to U.S. spending, as the average student loan holder faces a monthly payment of about $390 starting this fall.

“For most, this will be the first time making payments since the early days of the pandemic in March 2020. We regard the incremental ‘essential’ nature of the debt payments as likely to reduce discretionary spending by an approximately equal amount,” said Yih and the team.

In short, that will amount to a roughly 8% headwind to monthly personal income, hitting 16% of the U.S. population and adding pressure on consumer discretionary and apparel stocks, they say.

The Barclays analysts say their monthly estimate is on the conservative side, given it only takes into account federal student debt, which is 87.2% of total student debt.

As for the stocks, the analysts advise looking out for those with a consumer base that “skews toward higher income, higher education, and in the 18- to 34-year-old cohort.”

The greatest risk will hit the first bucket — recently graduated, newly employed individuals — who will likely be spending less at names like American Eagle Outfitters
AEO,
Urban Outfitters
URBN,
Figs
FIGS
and Victoria’s Secret
VSCO.

In the second bucket, they see some risks to higher income, aspirational luxury retailers selling to that cohort, with stocks including Capri Holding
CPRI,
Tapestry
TPR,
Canada Goose
GOOS,
Nordstrom
JWN,
Lululemon
LULU
and Ulta Beauty
ULTA
all at risk.

The least risk is seen for those retailers with a customer base that targets lower income or lower educational levels, or are potentially older shoppers. Those stocks include National Vision
EYE,
Burlington Stores
BURL,
Ross Stores
ROST
Old Navy at Gap
GPS
and TJX
TJX.

The markets

Stocks
SPX

DJIA

COMP
are mostly lower and bond yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
are steady. Hong Kong stocks
HK:HSI
led Asia lower as China lending rate cuts disappointed some.

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The buzz

Housing starts for May jumped 21.7% after a revised 2.7% fall in April. New York President John Williams will speak at 11:45 a.m. The big spotlight this week will fall on Powell’s two-day testimony on Capitol Hill that starts Wednesday.

China cut benchmark loan rates for the first time since August 2022. Goldman Sachs, which has downgraded China growth, noted some had expected bigger moves. China ADRs like Xpeng
XPEV
and Nio
NIO
are down 5% and 3%, respectively.

Alibaba
BABA

HK:1060
has shaken up its leadership, with Daniel Zhang stepping down as chairman and chief executive, but staying on to lead the cloud business, which is expected to be spun off. The stock is down over 2%.

Dice Therapeutics stock
DICE
is up 37% in premarket on news the biopharmaceutical will be acquired by Eli Lilly
LLY.

Cano Health stock 
CANO
is up 21% after the primary-care provider said its chief executive has agreed to step down.

FedEx
FDX
results are due Tuesday and could indicate whether consumers are buying more stuff. La-Z-Boy
LZB
will also report — both after the close.

Warren Buffett’s Berkshire Hathaway
BRK

BRK
has again boosted stakes in five Japanese trading companies — Mitsubishi
JP:8058,
Mitsui 
JP:8031,
 Itochu
JP:8001,
Marubeni 
JP:8002
and Sumitomo 
JP:8053
— to more than 8.5% each

Novo Nordisk’s
DK:NOVO

NVO
hit Wegovy weight-loss drug is set for sales of over $4 billion this year in the U.S. alone, says Citigroup.

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The chart

Another group of Barclays analysts, led by Venu Krishna looked at narrow leadership of the year-to-date S&P 500 rally via the so-called “leadership gap” —the spread between S&P 500 returns and returns without contribution of the top 10 stocks.

Over the last three decades, leadership has only been as narrow as it is today in 2000 and 2020, and both times, the top 10 stocks driving the rally retraced against the broader market in the short term, they note. That leadership gap has widened to more than 7%, and since the mid-1990s that has only happened in 2020 and 2020.

Read: This incredible chart shows the close relationship between the S&P 500 and Fed liquidity

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

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