U.S. retail sector faces earnings test as consumer fears weigh on stocks

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Highlights

Home Depot, Lowe's, and TJ Maxx report earnings this week with FactSet expecting $3.41, $2.97, and $1.02 EPS respectively.
The S & P Retail Select Industry Index is down nearly 7% year-to-date, with Home Depot falling 13%, Lowe's down 9%, and TJ Maxx off more than 2%.
Consumer staples stocks outperform as household strain intensifies, with Costco up 23%, Walmart up 18%, Target up 24%, and Amazon up 14% year-to-date.

Earnings week sharpens focus on consumer demand

As reported by CNBC, investors are watching a heavy run of retail earnings for signals on the health of the U.S. consumer as the sector underperforms the broader market. Home Depot reports on Tuesday, while Lowe's and TJ Maxx are also due this week, with FactSet forecasts calling for first-quarter earnings per share of $3.41, $2.97 and $1.02 respectively.

The S & P Retail Select Industry Index is down close to 7% year-to-date, while State Street's SPDR S & P Retail ETF has fallen almost 7%, the Consumer Discretionary ETF is down more than 2%, and Direxion's daily retail ETF has dropped almost 26%. Among individual names, Home Depot shares are down 13% this year, Lowe's has lost about 9% and TJ Maxx is off more than 2%.

Analysts are pointing to signs that inflation and higher energy costs are eroding consumer resilience. Evercore ISI's Greg Melich says attention is centered on how spending holds up as tax refunds fade, while Morgan Stanley's Lisa Shalett says consumers are in a fragile and weakening position and warns that demand destruction could follow if negative real wage growth persists.

Staples gain favor as household strain builds

Recent economic data is reinforcing caution around discretionary spending. April retail sales rise 0.5% on a nominal basis, but fall 0.2% after adjusting for inflation, and the Conference Board says that leaves second-quarter consumption starting from a weak base.

Other measures also point to pressure on households. The Commerce Department's personal savings rate falls to 3.6% in March, the lowest since October 2022, while credit card balances remain near record highs and total household debt rises to $18.8 trillion in the first quarter, according to the New York Fed. The University of Michigan's preliminary reading shows consumer sentiment at an all-time low in May.

That backdrop is supporting a shift toward consumer staples and value-focused retailers. Costco stock is up about 23% this year, Walmart has gained about 18%, Target is up more than 24%, and Amazon has risen more than 14%. Evercore says consumers remain value conscious after years of cumulative inflation, favoring Amazon, Walmart and Costco, while weaker housing and remodeling demand continues to weigh on home improvement retailers in 2026.

Our earlier article on Home Depot’s pre-earnings setup highlighted how elevated mortgage rates and a softer housing market were weighing on home improvement demand and the stock’s performance. We also noted that, amid a broader market rotation, investors were reassessing lagging retailers such as TJX Companies ahead of earnings as price sensitivity rises and value shopping gains relevance.

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