By Jacob Sonenshine
Get ready for people to shift their spending away from services and experiences and toward physical goods such as houses and furniture.
Spending on services, mostly travel and other experiences, has soared as people once stuck at home during the pandemic hit the road or headed for the airport. Compound annual growth in aggregate sales for a group comprising both major U.S. airlines and smaller carriers was 26% between 2020 and 2025, compared with 14% from 2015 through 2019.
Combined revenue for Marriott International and Hilton Worldwide Holdings increased more than 20% annually over the past five years, compared with single-digit growth between 2015 and 2019.
At the same time, in a parallel post-Covid-19 reaction, spending on goods fell off a cliff. Demand for housing-related goods surged in 2021 and then faded, a problem compounded by the fact that inflation and interest rates jumped, making people more choosy about what to buy. Sales for many home builders, retailers, and other providers of consumer goods declined for several years.
The funny part is that the broader consumer-goods arena is now so deep into its post-boom hangover that growth should pick up again. At some point, people will need goods they haven't bought in a while, especially if housing demand grows.
It makes sense to expect consumers to take it easy on the vacations and buy the housing and other items they have delayed purchasing for so long.
"A wallet share shift from services to goods is underway," writes Morgan Stanley's chief U.S. equity strategist Mike Wilson. He says makers of consumer discretionary goods are a top area of the U.S. stock market to buy.
The first sign that the shift is happening is that August's sales of new homes hit an annualized rate of 800,000, above expectations and up from 652,000 in July's 652,000. If this year's data looks anything like the latest results, demand for new housing will grow this year.
Growth could sustain itself beyond this year because the Federal Reserve has cut interest rates, which has dragged mortgage rates lower, making buying a home more affordable. The decline in borrowing costs could spark gradual, sustained growth rate in demand because lower rates tend to work with a lag of about 18 months, Wilson notes.
A second part of Wilson's thesis is that greater demand could lift prices for goods this year. That would mean companies could sell more goods at higher prices -- fuel for solid revenue growth.
Look at the State Street SPDR S&P Homebuilders ETF, home to names such as Lowe's, Home Depot, Williams Sonoma, Wayfair, and home construction companies KB Home, Lennar, DR Horton, and PulteGroup. Aggregate sales growth for companies in the exchange-traded fund is expected to have slowed to 3.5% in 2025, according to FactSet, a number that should be easy to beat in 2026.
"Early green shoots point to a more constructive setup in 2026," writes Evercore analyst Greg Melich.
Lowe's is a promising name. Analysts expect it to report a 0.2% decline in same-store-sales in 2025, setting the stage for an improvement this year.
The home-goods and hardware retailer is also building up its "pro business," which is still much smaller than Home Depot's. That matters because those operations generally sells higher-priced items to contractors for more affluent homeowners, making pro sales less sensitive to economic conditions.
Management said pro sales, which carry higher gross margins, grew in the third quarter, a positive sign for earnings.
So as long as the housing industry exhibits reasonable growth this year, the pro business will grow and Lowe's can achieve higher profit growth. From 2015 through this year, a stretch that includes periods of growth and contraction in the economy, annual earnings growth is expected to have been about 14%. A return to that norm would represent a rebound in profit growth.
That potential for faster growth makes the stock look attractive. At a recent $247, the stock is way down from its record high of $281, reached in October 2024.
It is now trading at 19 times the per-share earnings expected for the coming 12 months, compared with the more than 20 times it has reached when the market has been more confident about housing. The current multiple is well below the S&P 500's roughly 22 times, so earnings growth at Lowe's could lift the stock as long as the housing market improves.
The State Street SPDR S&P Retail ETF looks attractive as well. Aggregate sales for companies in the fund, home to the likes of TJX, Burlington Stores, and Target, are believed to have fallen in 2025, setting the stage for an improvement in 2026.
The ETF trades at just under 16 times forward earnings, toward the lower end of its range in the past five years. Earnings growth could bring it upwards.
These stocks look good.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 06, 2026 16:30 ET (21:30 GMT)
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