Retail stocks are broadly down this year compared with the market as a whole, and the sector will be put to the test this week as the big chains report earnings. Home Depot , TJ Maxx , Lowes , Target , Walmart and others are all reporting, and investors are looking at the sector for signs of the overall health of the U.S. consumer. "All eyes will be on how a resilient U.S. consumer holds up into summer as tax refunds fade and spiking energy costs start to bite," Greg Melich at Evercore ISI wrote in a Monday analysis. The S & P Retail Select Industry Index is down close to 7% year-to-date, and retail sector ETFs have been following suit. State Street's SPDR S & P Retail ETF (XRT) is down almost 7% since January, while the State Street Consumer Discretionary ETF (XLY) is down more than 2%; and Direxion's daily retail ETF (RETL) is down almost 26%. Home Depot shares are down 13% year-to-date, Lowe's is down about 9% and TJ Maxx has lost more than 2%. Following an April inflation report that showed rising prices eroding wage increases and clawing back the gains of recent tax cuts, Wall Street is sounding pretty dismal about near-term consumer prospects. "US consumers are indisputably in a fragile and increasingly weaker position," Lisa Shalett, chief investment officer at Morgan Stanley, wrote in a Monday note. "Can corporate earnings grow at a 20% clip through productivity gains when employee wage gains are negative? At some point, we see demand destruction in this equation." Though April retail sales were up 0.5% on the month on a nominal basis, according to Census data, they declined 0.2% in inflation-adjusted terms. "Adjusted for inflation, April real retail sales declined by 0.2% month-over-month, starting Q2 consumption on a weak footing," Yelena Shulyatyeva, senior economist for the Conference Board, wrote in a Thursday brief. Albert Edwards, strategist with Societe Generale, told clients that U.S. consumers are in "real trouble" in a Thursday note and that tax cuts from Republicans' major tax-and-spending cut bill passed last year would be little help. Higher costs from rising energy prices that provide cover for broader margin expansion – a scenario that played out during the post-pandemic inflation – isn't in the cards for the current, Iran war-related energy supply shock due to the weakness of the consumer, Edwards argued. "The current perilous state of the US consumer compared to 2022 is one key reason why cost-push greedflation is unlikely to gain any traction. In fact, a major squeeze on corporate margins could be the big surprise of 2026," he warned. Home Depot, which reports on Tuesday, is expected to have first-quarter earnings-per-share of $3.41, according to FactSet. Lowe's is expected to post EPS of $2.97, and TJ Maxx is expected to report $1.02. Consumer weakness traditionally prompts retail investors to refocus from consumer discretionary to staple stocks, and companies like Walmart, Target and Costco have been benefiting from this thinking. Costco stock is up about 23% this year, Walmart is up about 18%, and Target is up more than 24%. E-commerce giant Amazon , which also has a huge tech business, is up more than 14% year-to-date. "Consumers remain value conscious after years of cumulative inflation," Evercore's Melich wrote on Monday. "The importance of speed, convenience and value should keep the Big Three of Amazon, Walmart, and Costco strong. … Frozen housing & remodel demand keeps the market muted for Home players in 2026." Some consumer metrics in the economy are flashing red as tech stocks keep pulling away from the broader markets and gains are becoming more concentrated. The Commerce Department's personal savings rate fell to 3.6% in March, its lowest level since Oct. 2022. It has fallen from 5.5% as recently as last April. Total credit card debt is close to its all-time high at well-over $1 trillion, and total household debt increased to $18.8 trillion in the first quarter, the New York Fed reported. The University of Michigan's consumer sentiment survey hit an all-time low in May, according to a preliminary reading. Higher earners in the economy have kept up spending in recent years even as lower-income consumer have pulled back in a phenomenon often dubbed the "K-shaped economy," which is papering over some of the underlying weakness. Bank of America said Monday that wage growth "[is reinforcing] the K-shape," noting 6% annual wage growth for upper-tier earners versus 1.5% growth in the lower tier. Those growth trends flipped at the beginning of last year. "Higher incomes have reduced consumers' sensitivity to price differences and larger markups," David Mericle, chief U.S. economist at Goldman Sachs, wrote on Monday.
