Today, equities had one of their worst selloffs since 2020. Triggering this pullback was a disappointing earnings report from a major retailer. In the report, management commented that unexpectedly high costs (including freight and transportation), inventory impairments, and markdowns to address lower discretionary product sales would hurt profit margins going forward. Investors took this as a sign that corporate profits, especially in the retail sector, would struggle on elevated inflation and weaker consumer spending. While we agree that consumer spending will shift, and likely weaken to an extent on these worries, we do believe that the fundamentals for the consumer remain solid and this is a possible overreaction.
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