Here’s how Morgan Stanley expects the US election to impact textile retailers

Investing.com — 

The second-half trading backdrop remains “challenging” for textile retailers, although they could be supported by broader consumer sentiment that appears to be more positive than in prior election years, according to analysts at Morgan Stanley.

In a note to clients, the analysts noted that, heading into the final weeks before the crucial US presidential election in November, consumers’ optimism seems to be improving despite some quarter-on-quarter demand deterioration.

They pointed to a recent AlphaWise US Consumer Pulse Survey which showed that Americans had a “significantly more constructive” view of the outlook over the next six months since May, as well as a University of Michigan sentiment index which increased for the second straight month in September.

“[B]oth of which suggest a more upbeat consumer,” the analysts said.

For textile-focused retails and brands, the analysts argued that while some headwinds in the final six months of 2024 remain, there appears to be “limited risk” to Wall Street’s second-half income estimates for these groups.

“Softlines stocks are historical election-season winners – perhaps a function of fundamentals holding in better than market fears/intraquarter data points,” they said.

Historical sluggishness in mall foot traffic growth in the September to December period of previous election years may also not translate into a “fundamental deterioration” for the returns of textile retailers, they added.

“[I]f past serves as precedent – while high-frequency demand data could soften, we caution it may overstate the impact on fundamentals, which could prove more resilient,” the Morgan Stanley analysts said.

The comments come as Democratic presidential candidate Kamala Harris holds a narrow lead over Republican rival Donald Trump in recent national opinion polls. However, surveys of likely voters in key swing states that could potentially decide the outcome of the election remain tight.

From Wall Street’s perspective, strategists have said that both Harris and Trump’s tax plans could have a particular impact on corporate returns.

During the campaign, Trump has pledged to slash corporate taxes, while Harris has vowed to increase them.

The Morgan Stanley analysts projected that Trump’s plan could help boost average 2025 company profits by around 5%. Harris’s proposal, on the other hand, is estimated to dent earnings by roughly 3%.

“For textile firms, Burlington Stores Inc (NYSE:BURL), Foot Locker Inc (NYSE:FL), [and] Nordstrom Inc (NYSE:JWN) appear the most exposed to a potential change in US corporate tax rate, [and] Lululemon Athletica Inc (NASDAQ:LULU), Nike Inc (NYSE:NKE), [and] Skechers USA Inc (NYSE:SKX) the least,” the analysts said.