By Teresa Rivas
Man plans, god laughs. Retail investors are learning that lesson all over again.
Just a few months ago, 2026 looked like it was going to be consumers' time to shine: Tax changes meant bigger refunds were teed up, while policy watchers were hoping for potential interest-rate cuts and tariff relief.
Today, however, the picture looks quite different. Gasoline remains, on average, more than $4 a gallon in the U.S.; inflation is consequently higher; rate hikes are a possibility; and tariffs remain unsettled, with any potential refunds going to companies rather than shoppers.
So, while federal tax refunds are bigger on average this year, they're not as big as previously estimated, and people don't have as much discretion on how to spend them. That goes a long way to explaining why , despite the S&P 500's rise 4% year to date , the State Street SPDR S&P Retail exchange-traded fund is up less than half that and the State Street Consumer Discretionary Select Sector SPDR ETF is in the red.
The question for retail stocks is how much of Americans' tax refunds are going to paying energy bills versus spending at stores. Some 60% of consumers expect to spend their tax refunds within a month of receiving them, notes Bernstein analyst Zhihan Ma, so we're already seeing data on spending patterns.
The quick turnaround could be interpreted as consumers not worrying about all the macroeconomic and geopolitical uncertainties -- or that they simply don't have a choice. Either way, tax refunds are supporting ongoing spending for now, but Ma estimates that another two months of gas inflation could offset more than a third of the previously estimated incremental tax refund that could have otherwise gone to retailers.
Investors should be prepared for the possibility that, like 2025, 2026 is shaping up to be a year of shoppers trading down.
There is limited evidence that this is already happening to some extent. Ma used data from sales and foot-traffic data provider ADVAN to triangulate how much Americans with different incomes are visiting different stores. She found that mass and club retailers have seen strong visits year to date, led by low- and middle-income consumers. The lag in higher income shoppers may simply reflect the fact that they're buying more online.
At discounters such as Dollar General and Five Below, people with incomes between $50,000 and $100,000 are leading the growth in store visits, although trends are more mixed at Dollar Tree. Those with six-figure incomes again do not visit stores as frequently, though e-commerce could explain a small portion of that.
For discounters as a whole, Ma writes that "it is yet to be seen if the trade-down from middle- to high-income consumers will be enough to more than offset the further pressure that low-income consumers come under, but early data suggests that it is likely to be a net positive impact."
Her take on retail as a whole, though, has changed given the new normal: "In the beginning of the year, we expected retailers with middle- to high-income consumer exposure and discretionary exposure (e.g., Costco, Sam's, Target) to be main beneficiaries of tax refund. This dynamic has shifted and we now expect value retailers ( Walmart, Costco, dollar stores) to be beneficiaries of a continuation of the trade-down trend."
Sounds like a win for Costco either way.
Write to Teresa Rivas at teresa.rivas@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
April 23, 2026 14:52 ET (18:52 GMT)
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