Consumer spending is already being hit by inflation.This week was shock and awe in terms of retail and consumer stocks. Traditionally viewed as a safe haven in times of market stress, Walmart kicked things off with a downbeat outlook, but Target really set investor fears on high alert with its clearly bearish outlook. Both companies reported declining margins as cost pressures ramped up.
Next week is now interestingly teed up for a counter-trend rally. Retailers such as Costco , Dollar General , and Dollar Tree all report along with plenty of others in what is shaping up to be a key week to gauge the strength of the US consumer. Big Lots , Best Buy and Williams Sonoma complete the lineup. Our base case is the risk-reward is now favoring outperformance to the upside. We have no visibility on earnings , but we do have a line of sight on investor sentiment and positioning.