Walmart leads retailers shining spotlight on key market signal

BLOOMBERG

From Walmart Inc to Home Depot Inc, the biggest US retailers are about to grab the earnings spotlight, providing stock investors with crucial insight into consumer spending — the engine that powers two-thirds of the US economy.  Last quarter, a bevy of retailers like Target Corp and Macy’s Inc held a cautious view. But in recent months, the economy has been resilient with wage gains outpacing price increases and retail sales staying robust. Even consumers are beginning to believe inflation is receding, and economists on Wall Street and at the Federal Reserve have abandoned recession calls.
With the Fed signalling that it’s nearing the end of its most aggressive tightening campaign in a generation, Barclays Plc analyst Adrienne Yih expects US retail shares to outperform in 2024 as pressure on shoppers from inflation and higher borrowing costs eases. The call marks an about-face from three months ago, when Yih flagged recession risks for the group.
How an equal-weighted index of discretionary stocks — which puts Amazon.com Inc and other members on an even scale — performs versus staples has long been a telltale sign of Wall Street’s view of the economy and investors’ appetite for risk. The ratio has steadily climbed in 2023 — a sign that traders think the economy will skirt a recession over the next year.  “This ratio tells us that investors see brighter times ahead and want to increase risk in their portfolios,” said Thomas Martin, senior portfolio manager at Globalt Investments.
Since the end of May, the S&P Retail Select Industry Index, which is home to Amazon.com, Costco Wholesale Corp and Dollar Tree Inc, has rallied 16%, more than doubling the 6.8% gain for the broader S&P 500 Index. Surprising strength in retail sales bolstered bulls’ case that Americans are still willing to spend. Since then, Walmart has climbed 9.8%, while Macy’s and Home Depot have both posted double-digit gains.