Morgan Stanley’s Outlook on the US Election’s Impact on Textile Retailers

The trading environment for textile retailers in the latter half of the year is described as “challenging,” but analysts from Morgan Stanley suggest that a more positive consumer sentiment could provide some support, especially compared to previous election years.

In a recent report, the analysts observed that as the crucial US presidential election approaches in November, consumer optimism appears to be on the rise, even though there are signs of a decline in demand compared to previous quarters.

They referenced a recent consumer survey indicating that Americans have a more favorable outlook for the next six months compared to May. Additionally, a sentiment index from the University of Michigan showed an upward trend for the second consecutive month in September.

The analysts stated, “both of which suggest a more upbeat consumer.”

For brands and retailers in the textile sector, they acknowledged potential challenges in the latter half of 2024 but emphasized that there seems to be “limited risk” to Wall Street’s income projections for these companies.

“Softlines stocks have historically performed well during election seasons—possibly because their fundamentals have held up better than market fears or intra-quarter data might suggest,” they noted.

The analysts also indicated that the historical trend of decreased foot traffic in malls from September to December during election years may not necessarily lead to a “fundamental deterioration” in the performance of textile retailers.

“If history serves as a guide, while high-frequency demand data may weaken, we warn it could overrate the impact on fundamentals, which might remain more resilient,” they explained.

These insights come amid reports that Democratic candidate Kamala Harris is holding a slim lead over Republican candidate Donald Trump in national polls. However, polls of likely voters in key swing states—critical for determining the election outcome—remain closely contested.

From Wall Street’s viewpoint, analysts have suggested that the tax plans proposed by both candidates could significantly influence corporate returns. Trump has promised to reduce corporate taxes, while Harris aims to increase them.

Morgan Stanley’s analysts predict that Trump’s proposal could enhance average corporate profits by around 5% in 2025. Conversely, if Harris’s plan is enacted, it could potentially reduce earnings by approximately 3%.

Among textile firms, Burlington Stores, Foot Locker, and Nordstrom appear most vulnerable to changes in the corporate tax rate. In contrast, companies like Lululemon, Nike, and Skechers are viewed as less exposed to potential tax alterations, according to the analysts.