If Consumers Are Saviors, Upcoming Retail Earnings Will Show It

From Home Depot Inc. to Walmart Inc., the biggest US retailers are about to grab the earnings spotlight, providing investors crucial insight into consumer demand, the trajectory of economic growth and Corporate America’s profitability.

The group doesn’t have nearly the heft of Big Tech in terms of sway over the broader market. But these earnings announcements set to hit starting next week bear watching for a key reason: Consumer-discretionary shares are the year’s top-performing cohort in the S&P 500 Index, after getting battered in 2022 as soaring inflation and swollen inventories crimped profits.

The announcements ahead will go a long way to determine whether the rebound is just a temporary mean-reversion play to start the year or a green light to keep buying, given the fierce debate over whether the economy will skirt a recession. Surprising strength in retail sales is bolstering the bulls’ case, even as concerns remain about margin-shredding inflation pressures.

“We’re looking to buy great discretionary companies at a discount,” said Nancy Tengler, chief investment officer of Laffer Tengler Investments, who’s using pullbacks in the market this quarter to pick up discretionary shares. “Purchasing power remains strong.”

Investors will read the first tea leaves on Tuesday, when Walmart, which is labeled as a consumer staples company given its high percentage of grocery sales, and Home Depot deliver results before the market opens. Target Corp., Lowe’s Cos. and Dollar Tree Inc. follow the next week.