As expected, the Federal Reserve held interest rates steady in the current 4.25% to 4.50% range at its meeting on Wednesday, sparking barbs from President Trump about Fed Chair "Too Late" Jerome Powell.
Although the central bank was willing to cut rates late last year when inflation was running much higher than it is today, since Trump became President the Fed has not moved. Powell said Wednesday he believed higher prices are coming as businesses sell off goods brought in before Trump's tariff policies went into effect and start selling those with tariffs on them.
He also sees the prospects for lower job growth as reasons for not cutting rates. Powell said, "We think we’re in a good place on that, to respond to significant economic developments. That’s what matters. That is what matters to us. Pretty much that’s all that matters to us.”
It's a stance that poses substantial concern for the trajectory of the economy heading into the back half of the year.
The numbers belie Powell's "soft landing" hopes:
Existing home sales fell 0.5% in April from March, according to the National Association of Realtors.
New data from the U.S. Census Bureau showed that new housing starts declined 9.8% in May – the lowest level since May 2020.
Credit card delinquencies are rising, especially those 90-days or more.
Perhaps more ominous, the percentage of U.S. credit card debt in delinquency has risen for 10 consecutive quarters. We're approaching levels not seen since the financial markets collapse of 2008.
And it's more than just businesses dependent upon consumer discretionary spending. Financial stocks are also on the hook. Rising credit card delinquencies signal higher default risks for banks and credit issuers, especially smaller institutions with exposure to consumer debt.
The housing numbers also prove the real estate sector – both residential and commercial – will be impacted by rising costs, which dampens development.
As my colleague Chris Johnson recently noted, "retail and home goods are the canary in the coal mine."
He highlighted how Home Depot (HD), Lowe's (LOW), and Target (TGT) are all being impacted by the effects of this slow-motion economic unraveling.
Yet not everyone will fare the same, and some companies in these very sectors should thrive. Take a look at Walmart (WMT), JPMorgan Chase (JPM), and Prologis (PLD) as names you may want to choose to weather this storm.
Walmart’s focus on low-cost essentials and its robust e-commerce platform position it to capture budget-conscious shoppers. First-quarter U.S. sales grew 3.2%, driven by grocery and online channels, with U.S. gross margins 25 basis points, reflecting pricing power.
Despite a forward P/E of 35, its 1% dividend yield and a buyback program that saw the retailer repurchase $7 billion worth of stock in Q1 offer stability. Walmart’s ability to absorb tariff costs through scale makes it a defensive play in a weakening consumer discretionary sector.
JPMorgan’s diversified revenue streams, including investment banking and wealth management, mitigate consumer credit risks. Its first-quarter net income rose 9% to $14.6 billion, with a 21% return on tangible common equity showcasing resilience.
Trading at a price-to-book ratio of 2.3x and offering a 2% dividend yield, JPM benefits from scale and a strong balance sheet, making it a standout in a challenged financial sector.
Prologis is a leading industrial REIT, but one that thrives on e-commerce and logistics demand, making it less sensitive to housing market weakness. Its Q1 2025 core FFO grew 9% to $1.43 per share, driven by warehouse leasing. With a 3.9% dividend yield and a price-to-FFO ratio of 20x, ahead of peers, but below its historical average, it is in a solid position given its market strength and growth potential.
PLD’s global footprint and tech-driven logistics focus make it a resilient pick despite real estate sector challenges.
Although Powell has held out hope for possibly two rate cuts later this year, it's not a market that you should be going deep on.
Despite the warning signs, the market is still near all-time highs, suggesting a sharp correction is still in the cards. Keeping some powder dry to make opportunistic purchases if and when that happens is the best play to make.
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