Walmart and Home Depot are set to lead the upcoming quarterly earnings reports, providing crucial insights into the financial health of US households. Analysts are optimistic about the continued strength of consumer spending, which significantly influences the US economy. Positive signals from retailers are vital to boost investor confidence amid concerns about potential recession and persistently high interest rates.
The reports also come against a mixed economic backdrop, with strong job market performance, stickier-than-forecast inflation, and improving consumer sentiment. However, recent data shows a decline in US retail sales, raising concerns among investors, including worries about Americans’ diminishing savings.
Michael O’Rourke from JonesTrading emphasizes the significance of Walmart’s insights, stating that consumers seem to be spending reluctantly despite economic conditions. Analysts project slower revenue growth for Walmart in the last quarter, with the first decline in profits in six quarters, attributed to higher labor and product costs. Home Depot is also expected to show declines in both revenue and profits.
While some remain optimistic about a solid consumer outlook, others, like Patrick Kaser at Brandywine Global Investment Management, express concerns about the consumer-discretionary stocks. The focus remains on employment, as the job market proves resilient, and the Federal Reserve hints at future rate cuts.
Markus Hansen from Vontobel Quality Growth notes that despite a generally stable environment, middle-income Americans are trading down when possible, benefiting retailers like Walmart. Vontobel Quality Growth increased its Walmart position in anticipation of strong results, driven by the retailer’s appeal to more affluent consumers and continuous improvements in private-label offerings and store upgrades.
