Big earnings for retail names can help us see what the "average Joe" is spending on this quarter. What do the technicals have to say?
At its core, the US economy is almost entirely built around the consumer. How (and sometimes more importantly, where) people spend their money can offer unique insights into the state of the market. After all, when people are optimistic about their future earnings potential, they are more likely to splurge on excess/luxury goods. On the other hand, a more cautious consumer is more likely to forgo a morning cup of coffee or new pair of shoes until the overall economic picture gets a bit more clear. There is certainly an argument that consumer spending is being artificially propped up by higher income earners or credit card debt… an idea that us chartists won’t touch on today. Regardless, this week’s suite of earnings releases gives us an opportunity to look across the retail space and gauge just how consumers are spending their hard-earned cash.
The big retailers on the docket for this week are Target TGT & Walmart WMT, both of which provide valuable insight into where (and how) everyday shoppers are buying their everyday essentials. Historically speaking, there has been a “if not one than the other” relationship between the two, with Walmart acting as more of a true discounter while Target represented more of an “upscale budgeter” friendly location. Over the past few years, this explicit relationship has tailed off as TGT has struggled mightily, announcing as of their most recent earnings call plans to usher in a new CEO towards the start of 2026. Despite trying to put in a meaningful bottom in the high $80’s-low $90’s, the overall technical picture has been (and remains) quite bleak. In fact, TGT hasn’t earned a TA score of 4 (technically strong) or above since 5/24/2022. Since that point, it has shed nearly 30%, underperforming SPX by over 90% over the same timeframe. Ahead of WMT earnings 8/21, this conversation also provides an opportunity to introduce stock comparison via RS charts…. TGT has been on an RS sell signal on a 3.25% chart against WMT since late 2021. There will be some of you who will look at the current picture and assume TGT trades at a relative “discount” to other competitors. Trend followers know that underperformance trends can persist much longer than any one investor with a perceived value hunch can stay solvent.
Groceries aren’t the only area of the market that drives consumer spending. Homeowners are more likely to put up with an old dishwasher or washing machine when paychecks don’t stretch as far. On the other hand, strong economic prospects make it a bit easier to justify that DIY pavilion covering your grill out back. With that said, we can also look at recent results for Lowe’s LOW & Home Depot HD to peak behind the curtain as to how those names are doing. According to the WSJ, major takeaways from earnings for the major home improvement names were that homeowners are taking on more small projects but perhaps are putting off larger ones. Furthermore, possible tariff implications are still of interest on the supply side and will be a point to watch going forward.
From a technical perspective, both LOW & HD opened higher before journeying lower alongside the market throughout 8/20. Both names have very similar technical pictures, earning 2/5 technical attributes at the time of this writing. Despite this, the near-term picture has improved, seeing both names break back into a positive trend and post consecutive buy signals. Airing on the side of caution via the technical attribute scores, exposure should be limited for both names… but both remain options to keep on the backburner if continued improvement is in store as both aim to catch back up to the market in 2025.
