Retail analysts have had a tough year, balancing weak retail data one month with retail stocks soaring 20% in a single day the next. Recently, Wall Street got a clearer view of America’s spending problem as McDonald’sMCD

, 3MMMM

, and TeslaTSLA

warned of mounting economic pressures on customers. Bank of AmericaBAC

CEO Brian Moynihan noted that consumers are pulling back — with spending from cards, checks, and ATM withdrawals growing just 3.5% in May, down from 10% last year.

Return of spenders? Some retailers offer a different perspective. In May, TargetTGT

reported its fourth straight quarter of sales declines but saw an improvement in discretionary spending in Q1. Target wasn’t the only firm to share that sentiment, as a handful of retailers stunned investors with strong results last week.

• Abercrombie & FitchANF
  , GapGPS
  , and DICK’s Sporting GoodsDKS
  reported record earnings, with their stocks rising nearly 20% after their reports.
• CostcoCOST
  also reported a 9.1% revenue increase driven by artificial trees, wagyu, and Kirkland gold club — or “unique items at great value,” according to CEO Ron Vachris.

Can Discretionary Brands Become Essential Again?

Strong earnings boosted the SPDR S&P Retail ETFXRT

by over 8% in the past month, extending its five-year return to 94%, slightly outpacing the S&P 500’s 89%. But what theXRT

doesn’t show is which part of retail is thriving, as investors remain skeptical of a discretionary (a.k.a. stuff you don’t need) comeback.

• The Consumer Discretionary Select Sector SPDR FundXLY
  , which includes Tesla and LululemonLULU
  , has significantly underperformed the S&P 500 over the past five years.
• TheXLY
  recently hit its biggest discount against S&P 500 names as energy, tech, and financial industries continue to outperform this year.

Business not as usual: Since the pandemic, analysts have juggled confounding market data with GDP, stocks, and wages rising — while Americans sink into debt, cut back on spending, and believe that the US is already in a recession. The question may not be if consumers are spending but where they’re spending. Moynihan pointed out that spending on travel and entertainment is increasing, with more Americans embracing savings and paying down debt. Another BofA survey showed that 47% of workers feel “financially well up,” a jump from 42% last year.