What happened

A government jobs report was the catalyst for another broad-based sell-off on Wall Street to close out an already volatile week. The data suggested the Federal Reserve will continue to increase interest rates to get runaway inflation under control.

With that as a backdrop, a number of consumer-facing stocks took it on the chin today. Streaming video pioneer Roku (ROKU -7.26%) was off by as much as 7.7%, regional coffee chain Dutch Bros (BROS -4.21%) stock was down as much as 5.8%, and handmade goods platform Etsy (ETSY -4.06%) was down as much as 4.8%. As of 3:15 p.m. ET, the three were still trading lower, down 6.5%, 4.1%, and 3.8%, respectively. For context, the broader market indexes also slumped, as the S&P 500 traded down 2.9%, while the Nasdaq Composite shed roughly 3.7%.

To be clear, none of these consumer goods purveyors had anything in the way of company-specific news fueling the declines. Rather, the jobs report stoked investor fears that continued high inflation would result in additional interest rate hikes, which will ultimately curb consumer spending, weighing on these stocks.

So what

The Bureau of Labor Statistics released its monthly jobs report and the news wasn’t what investors were hoping for. On a seasonally adjusted basis, nonfarm payroll jobs increased by 263,000 last month. This was less than the 315,000 jobs added in August and also lower than the 275,000 increase predicted by economists. The important takeaway, however, is that the labor market remains surprisingly robust. 

Another worrying statistic in the report was the increase in hourly wages, which edged 0.3% higher, a sign that wage inflation continues to take its toll on employers. The unemployment rate, another closely watched metric, continued to fall, reaching 3.5%, down from 3.7% in August. Economists had predicted the rate would remain unchanged from last month.

Taken together, the strong jobs data increases the likelihood that the Fed will once again be forced to raise interest rates in its ongoing battle to tame stubborn inflation.

Now what

Investors have been taking their cues from the central bank and Federal Reserve Chair Jerome Powell, who has remained steadfast in his resolve to bring down inflation. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell remarked in a speech in late August. 

In September, the Fed raised interest rates by 0.75 percentage points, the third successive rate hike since June and the fifth so far this year. This pushed the overnight lending rate up to a range of 3% to 3.25%, the highest it’s been since 2008. 

The perfect storm of high inflation, rising interest rates, and recession fears has weighed on Main Street, as people have been making tough choices in order to make ends meet. Each of these three businesses relies on consumer demand.

The ongoing macroeconomic upheaval will likely translate to lower discretionary spending and fewer trips to coffee houses including Dutch Bros and fewer handmade or vintage items purchased from online platforms including Etsy. Roku faces its own challenges, as companies historically cut back on marketing in tough times, including the digital advertising that fuels the ad-supported streaming video on Roku’s platform.

This suggests challenges lie ahead for these three companies. However, like with every cloud, there’s a silver lining. The investing theses for these stocks remain unchanged, merely put on pause until the economy finds a stronger footing. As a result of the uncertainty, Etsy, Roku, and Dutch Bros stocks are all at or near historically low valuations, trading at 5 times, 2 times, and 2 times next year’s sales, respectively. For those with money to invest and an appropriate investing time horizon, now represents a rare opportunity to pick up shares of these companies at a discount.