What’s the outlook for Wesfarmers shares in July?

As the cost of goods and services increases, consumers supposedly have less disposable income to spend on discretionary items.

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Key points

  • Wesfarmers shares have been pushed lower in 2022 and trade deep in the red
  • Despite that, the share isn't out of favour with everyone and has caught a bid last Friday
  • Wesfarmers shares remain 28% lower over the past 12 months

The Wesfarmers Ltd (ASX: WES) share price has struggled in 2022. So much so that it hit 52-week lows last month.

It trades 29% down since January and took another plunge in June along with the broader market. Before the market open on Monday, the Wesfarmers share price rests at $42.15.

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What’s in store for Wesfarmers shares in July?

The outlook for consumer cyclical shares has been choppy in 2022 as the economy moves from pandemic fear to inflation.

Add in interest rates and the recipe isn’t too inviting for investors. The S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) has slipped 24% this year to date and trades more than 6% down in the past month.

Meanwhile, talks of inflation and interest rates have been a key driver for shares like Wesfarmers this year.

Uncontrolled inflation is a peculiar theme in that it affects both the real economy and the financial markets in equally destructive ways.

As the cost of goods and services increases, consumers supposedly have less disposable income to spend on discretionary items.

However, the team at Morgans reckons Wesfarmers is well positioned to “navigate through a more cautious consumer environment”.

In the light of rising prices on just about everything, Morgans also reckons that Kmart and Bunnings will stand out as “consumers focus on value”.

“[T]he core Bunnings division remains a solid performer as consumers continue to invest in their homes,” Morgans said in a recent note. Bunnings contributes roughly 60% of group operating income.

“We see the pullback in the share price as a good entry point for longer term investors.”

With that in mind, it’s going to be an interesting month for Wesfarmers shares in July.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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