By Teresa Rivas
Gas prices are stuck at about $4.50 a gallon, keeping a lot of Americans away from the store. And when shoppers stay at home, it's hard for the average investor to get excited about consumer stocks.
But Wall Street analysts are coming at it from a different standpoint. American consumers have shown their resilience -- and they'll show it again.
There has been at least some interest in consumer companies, considering the State Street Consumer Discretionary Select Sector SPDR exchange-traded fund is near all-time highs, though much of that is down to the fact that Tesla and Amazon.com account for about 45% of the fund. That alone is a reason Yardeni Research's Ed Yardeni believes it deserves a market-weight position at best.
"A strong stock price index resting on two stocks, with thin breadth, and a full multiple, is a sector to hold, not to chase," he writes. "It could briefly outperform if oil prices fall in response to the end of the war in the Middle East."
That's because the sector is ground zero for the K-shaped economy, in which the wealthiest keep on spending and everyone else pulls back. It doesn't help that consumer discretionary stocks' forward profit margin is the third-lowest of the 11 sectors' margins.
Then there's the fact that with earnings season mostly wrapped up, there's nothing likely to move earnings estimates over the next month or so--geopolitics aside--until conferences start up and executives' windows for commentary open again.
Nonetheless, Yardeni does note that earnings growth is set to almost double to 14.6% in 2026, and stripping out Amazon and Tesla means that discretionary's lofty valuation is actually more in the middle of its historical range.
Not everything is cheap outside those names, however. Companies like Walmart and Costco Wholesale--which brings up the rear of earnings season this week--are also still trading for rich valuations, even as they've backed off recent highs, along with other industry winners like TJX Cos., O'Reilly Automotive, and Hilton.
"Businesses do not have to implode for these stocks to just take a well-deserved breather," writes Jefferies' U.S. Consumer Strategist Carey Kaufman, although it's "VERY unlikely any of those great names above will become the next 'Dollar Stores' to be kicked off the island and turned into a more volatile love / hate stock."
Any weakness is likely temporary though, he thinks, given that so many companies from across the spectrum have noted the ongoing resilience in consumer spending.
"I think the only time I have seen actual austerity en masse by the U.S. Consumer was the Great Financial Crisis...and we had to create the trifecta of a Real Estate market crash, an Equity Market crash and Consumer Credit tightened across all cohorts."
This year the major catalyst has been rising oil prices. According to AAA, the national average price at the pump stands at $4.49, and oil prices are up 83% year to date through Friday's close.
Morgan Stanley's Michael Wilson likewise thinks that although discretionary may be out of favor, the sector is worth investors' attention, based on multiple catalysts, including people shifting back to spending on goods over services, improvements in pricing power, and the ongoing spending by high earners.
"The oil shock has held these stocks back, but that pressure should start to ease if the Strait reopens (even partially given the risk already priced into this area),' he notes. "Further, earnings revisions breadth has now started to improve for Discretionary overall and for Durables and Apparel more recently (up 4% and 11%, respectively, over the past 2 weeks)."
The latter could be good news for companies like Gap and Abercrombie & Fitch that are also reporting this week.
Guggenheim analyst Simeon Siegel echoed that sentiment, noting that it "may not have felt like it, but so far this quarter, our coverage saw above-average sales, earnings before interest and taxes, and earnings per share growers" along with a higher percentage of earnings per share beats.
Times may be tough for many Americans, but the most popular therapy remains retail therapy.
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
May 26, 2026 13:42 ET (17:42 GMT)
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