Much has been written about the terrible shape that the consumer is in and how this spells doom for the economy. There’s just one problem with this narrative: the market disagrees! Market behavior suggests the consumer is holding up well. To make the case, we look at industries closely tied to consumer health—retail, automotive, and travel. Our view is simple: the market tends to know best. If a meaningful downturn were looming, we’d expect to see it reflected in these stocks. Instead, markets appear confident that consumer spending may strengthen in the year ahead.
Retail stocks are doing well
Clothing and apparel is one of the first categories consumers cut back on when they are distressed financially. But when we look at the stock performance of key industry players like Abercrombie & Fitch (ANF), Macy’s (M), Dicks Sporting Goods (DKS), and TJX Companies (TJX), they have all been doing very well. Below is a look at the share price performance of these companies (and others) over the last 6 months:
We believe this strong performance is an important signal from the market that the consumer is in relatively good shape. Rising stock prices reflect expectations of higher future earnings—and for these companies, stronger earnings depend on increased consumer spending. Taken together, we view this as clear evidence that the market’s outlook on the consumer is far more positive than the narrative you see in the headlines.
Cars are expensive, and yet…
One might dismiss strong retail performance as evidence of healthier spending on lower-cost items. But when we turn to big-ticket purchases—cars, in particular—we see the same pattern. Shares of major automakers like Ford (F), General Motors (GM), Tesla (TSLA), and the leading used-car marketplace Carvana (CVNA) have all been performing exceptionally well.
Given how expensive vehicles are today, the message is hard to misinterpret: if the consumer were truly in dire straits, it’s unlikely the market would be bidding up the stocks of companies that rely on selling high-priced vehicles to generate their profits. Check out the six-month performance of these stocks below:
Spending at your leisure
If retail and automotive can be explained away as “needs,” travel spending cannot. Leisure travel is one of the purest forms of discretionary consumption—no one needs to book flights or hotels. Yet the performance of key travel-related stocks tells a clear story: consumers are spending freely. If the consumer were truly in trouble, we wouldn’t expect to see this kind of strength from companies that rely almost entirely on optional travel spending.
Marriott (MAR) and Hilton (HLT) have reached new all-time highs over the last six months. Airline stocks like Southwest (LUV), Delta (DAL), and United (UAL) have also climbed more than 20% in that same period. And if that’s not enough evidence, casino operators such as Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up more than 40%. Here’s a closer look at how this basket of travel and leisure stocks has performed:
Taken together, these areas of the market—retail, autos, and travel—are all sending the same message: the consumer is in better shape than the headlines suggest. When the market grows concerned about consumer health, these are the first places it typically shows up. For now, the signals remain strong. We understand there’s plenty to worry about these days, but the market is telling us that, at the moment, consumer spending isn’t one of them.
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