Morgan Stanley says consumers looking for 30% discounts on holiday shopping before buying, sell retail stocks

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Retailers will be competing for a budget pool that is similarly sized to last year and will have to entice shoppers with more competitive prices.

Morgan Stanley highlighted several companies that are prepared to withstand — and even benefit from —consumers' shifting preferences this holiday season, as inflationary pressures dampen shoppers' budgets this quarter. "We are underweight the consumer discretionary sector; the lower prices customers are looking for will weigh on company margins and earnings," analyst Michael Wilson said in a Thursday note.

"Durable goods spending has slowed and that is expected to continue into the holiday season," Wilson said in the note. "Even if the recent slowdown proves temporary and holiday sales exceed expectations, the larger narrative unfolding is one of the consumer weakening, persisting inflation, and a slowdown in durable goods.

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