Retail stocks are ailing on fears about the U.S. consumer. Will these earnings change that?
Pivots to consumer staples from discretionary are standard when warning signs start to flash.
TL;DR
- Retail stocks are broadly down year-to-date, underperforming the overall market.
- Major retailers including Home Depot, TJ Maxx, Lowe's, Target, and Walmart are set to report earnings this week.
- Investors are looking for signs of U.S. consumer health amidst concerns about inflation and rising energy costs.
- Inflation-adjusted retail sales declined in April, indicating a weak start to the second quarter for consumption.
- Consumer sentiment surveys have shown historically low levels, and household debt is near an all-time high.
- A 'K-shaped economy' phenomenon is noted, where higher earners maintain spending while lower-income consumers pull back.
- Investors are pivoting from consumer discretionary stocks to consumer staples, benefiting companies like Walmart, Target, and Costco.
- Home Depot and Lowe's shares are down year-to-date, while TJ Maxx has also experienced losses.
- Costco, Walmart, and Target have seen significant stock price increases this year.
- Amazon's stock is also up year-to-date, benefiting from its e-commerce presence.