- Stock market volatility and cutbacks in industries like Big Tech are affecting wealthy Americans.
- Bank of America says this is an important dynamic to recognize in the coming economic downturn.
- The firm has chosen stocks that it wins — and loses — as clients cut their spending.
While recessions are especially harmful to people with low incomes, the current market downturn can hurt people who are better off.
Bank of America thinks a recession is coming, despite the fact that the US economy is still holding up well. What has hurt so far are stocks, bonds, and housing prices, all of which disproportionately affect those at the higher end of the income spectrum.
Although the job market is still hot, layoffs in Big Tech and other sectors have also included an unusual proportion of high earners.
“Spending by high-income households with a preponderance of assets may be more sensitive to market declines, and we see evidence of a further deterioration toward middle- to high-income earners,” wrote Bank of America U.S. equity strategist and chief. Jill Carey Hall’s US Small/Mid Cap Strategy in a recent note to clients.
This means that in the coming recession, people with higher incomes are more likely to downsize and cut back on spending than in the past.
“We see risk to high-end exposed US stocks this year, due to an extended asset effect,” Hall wrote. “These goods have generally been more defensive than lower price point retailers during past recessions, but this time may be different.”
When these people cut back on their spending and tighten their purse strings, they naturally tend to cook more at home and eat out less — and companies that offer more budget-friendly options take advantage.
“We are likely to benefit from trade-downs of sub-sectors/stocks (many of which are in SMID) and/or Staples>discretions: restaurants, pizza, leisure stocks with strong value propositions like Planet Fitness (PLNT), warehouse chain BJs ( BJ ), off-price retailers such as Burlington (BURL), needs-based hardline stocks, and more,” Hall wrote.
There will be losers in that process, or even companies that will see lower sales as a result of their high-end customers taking cost-cutting measures. Hall thinks that could include winter clothing maker Canada Goose, home goods retailer Bed Bath & Beyond, electronics retailer Best Buy, and consumer products companies such as Clorox and Kimberly-Clark.
But the following 22 companies have “buy” ratings from Bank of America, and Hall expects them to benefit from the coming economic downturn as high earners cut spending.