During the Cold War, the “twilight struggle” (as JFK called it) was between capitalism and communism. Today, the world’s dominant “ism” is…consumerism. That’s especially true in the world’s largest economy, America.

Consumer spending makes up roughly 70% of U.S. gross domestic product. Our country relies on robust shopping to drag the economy out of recessions. Judging by my credit card bills, the Persinos clan is performing their patriotic duty.

However, U.S. shoppers as a whole are losing some of the confidence they showed earlier in the year, as the path to recovery becomes strewn with obstacles. Rising inflation, monetary tightening, overseas war, and political polarization in Washington, DC are souring consumer moods.

The major U.S. stock market indices slumped Tuesday in the wake of a troubling reading of consumer confidence. The indices fell as follows: the Dow Jones Industrial Average -1.56%; the S&P 500 -2.01%; the NASDAQ -2.98%; and the Russell 2000 -1.86%.

In pre-market futures contracts Wednesday, U.S. stocks were little changed as investors await remarks from Federal Reserve Chair Jerome Powell, who is attending a June 27-29 summit of central bankers in Europe.

The Conference Board reported Tuesday that its Consumer Confidence Index fell in June, following a decline in May. The Index declined to 98.7 (1985=100), down 4.5 points from 103.2 in May, and currently stands at its lowest level since February 2021. See the chart:

The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, fell to 147.1 from 147.4 last month. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, fell sharply to 66.4 from 73.7 and is now at its lowest level since March 2013.

According to the report, consumers’ appraisal of current business conditions was less favorable in June:

• 19.6% of consumers said business conditions were “good,” down from 19.8%.
• 23.0% of consumers said business conditions were “bad,” up from 21.7%.

Traders have received a mixed bag of economic data from which to take their cues. Consumer confidence has slipped, but the jobs market remains healthy and household savings are ample.

Retailers that sell bargain merchandise continue to benefit handsomely from frugal consumers. At the same time, transnational purveyors of branded goods are enjoying the ability (so far) to raise prices without significant consumer push-back.

Read This Story: How to Play an Inflation-Driven Bear Market

As a consequence of global consumerism, multinational consumer products companies have become a better investment than consumer companies that serve only one country. A major but little-discussed reason is “reverse innovation.”

Big companies based in developed countries are selling products to consumers in developing nations who could not always afford the products as they were priced in developed countries.

These firms changed their products to make them cheaper so they would fit the smaller budgets of these consumers, and this reverse innovation had a surprising benefit. Those cheaper, re-engineered products can be sold in developed countries for higher prices, and substantially higher margins.

A global firm that masters reverse innovation can increase profits even in times of high volatility or slow economic growth. In other words, times like now.

Consumer products companies with strong brand names, efficient production methods, worldwide distribution, and conservative balance sheets have the wherewithal to survive the current slowdown and position for growth when spending ticks higher again.

Now is a good time to build positions in the stocks of beaten-down global consumer giants that will inevitably recover when external havoc (e.g., the Russia-Ukraine war) blows over.

The name of the game…

In this volatile and risky market, where can you still find solid growth opportunities? We can sum it up with a single word: takeovers. You might have heard them referred to as buyouts, mergers, or acquisitions. But no matter what you call them, when a takeover is triggered, the profits that spill out have life-changing potential.

In this era of war, inflation and pandemic, corporate consolidation is the name of the game. Even the whisper of a “mega-merger” can hand investors enormous returns. My colleague Nathan Slaughter, chief investment strategist of Takeover Trader, just pinpointed a potential takeover deal that could dwarf them all.

Want to get in on Nathan’s next big trade? Click here for details.

John Persinos is the editorial director of Investing Daily.

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