MarketsJul 16, 2026
Why a Consumer Rebound Is Back on Wall Street's Radar
Retail Sentiment
Rhea Lobo
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Consumer discretionary is the worst-performing sector in the S&P 500 so far in 2026. Multiple Wall Street analysts now say the selloff has gone too far, but the recovery won't lift all boats equally.
The State Street Consumer Discretionary Select Sector SPDR is down over ~2% year to date, while the S&P 500 has gained nearly 10%.
Higher gas prices pushed real wages lower since spring, and consumers have been drawing down savings since early 2025. That drawdown signals shrinking spending power, even as jobs remain plentiful.
Bank of America, Wells Fargo, and JPMorgan Chase all reported recently that consumer spending outperformed expectations in Q2 2026. Yet nearly two-thirds of consumers believe a recession is likely, per EY-Parthenon data.
Consumers are still opening their wallets, but they're hunting for value and deals. Loyalty programs are gaining traction, with 53% of consumers saying they're likely to sign up for one amid economic uncertainty.
The top 20% of US households by income now account for roughly 60% of consumer spending, according to William Blair analyst Sharon Zackfia. That wealth concentration is holding up, buoyed by equity market gains. Lower-income cohorts are getting squeezed harder.
Tom Maher, manager of the Hilton Small-Mid-Cap Opportunity ETF, said the top of the K-shaped economy is spending well thanks to the wealth effect, but the bottom end is troubled. A K-shaped economy is one where higher-income groups recover or grow while lower-income groups continue to struggle.
Eric Clark, portfolio manager of the Alpha Brands Consumption Leaders ETF, agrees that the US is now operating as two distinct consumer economies.
One structural headwind cuts across income levels. Brands that raised prices the most since 2019 are losing customers to those that held the line.
Walmart recently announced grocery price cuts, a signal that even staples are hitting a consumer breaking point. Apparel and furniture have historically had no pricing power, making those sub-sectors especially vulnerable if cost pressures mount.
BTIG chief market technician Jonathan Krinsky says consumer stocks are "coiled" for a rebound, with the State Street SPDR S&P Retail ETF poised to resolve higher. He sees potential for to reach roughly $100 from current levels near $88. The ETF trades at under 14 times 2027 earnings estimates.
RBC Capital Markets head of US equity strategy Lori Calvasina recently upgraded the consumer discretionary sector to Market Perform from Underperform, citing signs of attempted stabilization in consumer confidence data.
Krinsky specifically flagged Best Buy and Etsy as showing solid price charts, with potential turnarounds forming in Abercrombie & Fitch and On Holding. Restaurant stocks are also on the radar. Krinsky said lower gas prices could lift the group, and he sees constructive charts for Chipotle Mexican Grill, Starbucks, and Texas Roadhouse, all rated Buy by BTIG analyst Peter Saleh.
"The US consumer is still set up relatively well with full employment and widespread market participation."
Sharon Zackfia, William Blair
Zackfia's framework for navigating this environment centers on earnings visibility — companies whose revenue is predictable regardless of which direction sentiment breaks. She splits her picks into offensive and defensive buckets.
Her defensive favorites include Casey's General Stores, Costco Wholesale, Ross Stores, and TJX Cos.. These names tend to benefit when consumers trade down or seek value. Boot Barn Holdings and Dutch Bros. also make her defensive list.
On the offensive side, she favors names with valuation upside if sentiment recovers faster than expected. Cava, Carvana, e.l.f. Beauty, and On Holding are among her top picks there.
For exposure to the upper end of the K, the ETF holds Warby Parker, Ulta Beauty, Adidas, and DoorDash. The ETF takes a similar tilt with Ralph Lauren, Freshpet, and Yeti Holdings.
Cooling inflation is giving the sector room to breathe. The names with pricing discipline and earnings clarity are the ones most likely to move first.
