By Lewis Krauskopf and Sinéad Carew

NEW YORK (Reuters] – Stocks of U.S. retailers suffered a severe decline last week. But they are not low enough to keep long-term investors at bay. Long-term buyers remain anxious about whether rising inflation will cause consumers to make smaller purchases and hurt their bottom-lines.

Last week saw consumer staples fall 8.6% while consumer discretionary fell 7.4%. These were the worst declines in any sector, and inflation is hurting corporate profits. Walmart (NYSE 🙂 shares plunged 19.5% last week, while other companies’ stock prices fared worse. Target (NYSE:) plunging 29% after disappointing results.

Investors are worried that consumers will cut back on spending due to higher prices. This week’s earnings report includes Best Buy (NYSE:), Dollar General (NYSE) and Costco Wholesale(NASDAQ:).

“I think it has been a wake-up call to investors that the consumer is being impacted by higher inflation … sooner than what I think the Street was anticipating,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “We are only at the beginning of people trading down and changing their spending patterns.”

On an annual basis, the latest consumer price index increased 8.3%. AAA says gasoline prices have risen more than 50% in the past year.

The Fed has promised to keep raising U.S. interest rates until inflation is squashed, a key factor hitting risk appetite for investors and putting the S&P 500 on the cusp of a bear market, defined as a 20% decline from its record high.

Chief investment officer of Bokeh Capital Partners Kim Forrest believes that rising oil prices and higher gasoline prices will continue to impact consumer spending. According to her, discretionary retail should be avoided at all costs. High fuel prices and gas prices have a huge impact on many people.

A survey by Morgan Stanley According to NYSE:, more than half of respondents plan to reduce their spending in the coming six months because inflation. According to the bank, most of these cuts will be in categories like dining out and shoes and apparel.

The slump in share price has certainly made valuations attractive. The forward price-to-earnings ratio for the S&P 500 retailing index, for which Amazon (NASDAQ:) makes up half the weight, has come down to 25.4 times from 33.9 times at the end of 2021, according to Refinitiv Datastream.

Chase Investment Counsel president Peter Tuz said that he will likely look at Target shares in the coming days to determine if Target shares are worth buying, after they fell 25% on the report’s earnings. Tuz explained that Target is one stock you should look into if it slides 25%. “You may decide not to buy it, but it’s one of America’s premier retailers.”

Mona Mahajan is a senior investment strategist for Edward Jones. She stated that although the retail market’s “risk/reward ratio” has become more attractive, it would be nice to see signs of inflation.

Mahajan stated that while we are seeing some interesting opportunities, it would be helpful to confirm the inflation story before taking any action.