4 Reasons Consumer Spending Will Stay Strong

(David Paul Morris/Bloomberg)

This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

Consumers’ Jolly Holiday

Morning Briefing

Yardeni Research

yardeni.com

Nov. 24: With tariffs and inflation making products more expensive, will consumers be willing and able to buy as much as they’d like this season? Some investors are concerned that they won’t. But consumers remain strongly positioned: They’re largely employed, not overleveraged, benefiting from a three-year bull market, and expecting larger tax returns next year thanks to [the] One Big Beautiful Bill Act.

You’d never know that consumers are in a relatively strong position by looking at the stock market. The S&P 500 Consumer Discretionary sector has inched up only 1.2% year to date through Monday’s close, making it the third worst performing sector in the broad S&P 500 index. However, the sector’s two largest members have been holding back its performance for reasons not reflective of consumer spending: Amazon (up 3.1% YTD) and Tesla (3.5%). Also hurting performance have been the declines in Home Depot (-13.5%) and Lowe’s (-7.3%).

More indicative of consumers’ strength are the year-to-date performances of Walmart stock in the Consumer Staples sector —up 15.2%—and the S&P 500 Apparel Retail industry index, home to Ross Stores and TJX, which has gained 21%.

Ed Yardeni and Team

Healthcare Rallies Like 2019

The MIZ-diagnosis

Mizuho

mizuhoamericas.com

Nov. 25: Big inflows into healthcare are helping single stocks. Despite lingering issues related to the broader political and regulatory environments, the group continues to trade exceptionally well. Performance is not about stocks—it’s about money coming into this complex, spurring gains across the board. [We’re] getting a lot of questions on gains seen in various names but think far less about micro and almost all macro. Certainly there has been some aggressive multiple expansion versus how stocks were trading pre-earnings announcements…

Healthcare is now the fourth best S&P 500 subsector on the year, consistently moving up the since the summer. This dynamic is a real rarity, especially against the most recent couple of years in which healthcare underperformed the S&P by 24% and 22% in 2023 and 2024, respectively.

Investors have been commenting for months about the potential for a healthcare rally if and when any dollars came out of momentum components within the market. Healthcare performance is obviously getting noticed by those dedicated to trading this space, but also by generalists and retail alike, helping to drive what is becoming almost a self-fulfilling upward trajectory not seen to this extent since late 2019.

Jared Holz

What Makes India Different

EM Watch

TS Lombard

tslombard.com

Nov. 24: India is the key diversifier in emerging-market indices dominated by manufacturing and tech. China, Taiwan, and South Korea together account for more than 60% of the MSCI global EM equity index, compared with India at 15%. GDP growth in these three economies is dominated by manufacturing exports and high tech.

India’s economy is different. Private consumption is the primary driver of growth, with limited dependence on merchandise exports, a large service sector and relatively little manufacturing as a share of GDP. India is likely to be less vulnerable to many of the most important risk factors currently facing investors, including disruption to global trade and fears about stretched equity valuations in AI and related sectors. Equally as important, India is less exposed to the ups and downs of U.S.-China geopolitics.

Jon Harrison

Exceptional Earnings

Weekly Market Commentary

LPL Financial

lpl.com

Nov. 24: Corporate America delivered another exceptional earnings season. Companies effectively navigated cost pressures during the quarter, although a few moving pieces supported third quarter results.

Among earnings highlights:

• S&P 500 earnings per share growth is tracking over 13%, with 95% of companies having reported, cruising past the 7.4% consensus forecast at quarter-end on Sept. 30.
• S&P 500 revenue grew 8.4%, an atypically strong 2.5% above expectations. A strong 82% of companies beat EPS targets, above the five-year average (78%). And the revenue beat rate of 76% tops the five-year average (70%).

Several factors likely played a role in last quarter’s strong results. Unexpectedly strong economic growth in the third quarter provided support. Gross domestic product growth may reach 3% annualized despite the slowdown in job growth. Lower expected tariffs helped, as the amount of upside was likely inflated by companies guiding conservatively for the third quarter back in July and August.

Expectations keep rising, the bar keeps going higher, and corporate America continues to clear it handily.

Jeffrey Buuchbinder, Adam Turnquist, Brian Booe

Alternatives to the AI Trade

GMO Quarterly Letter

GMO

gmo.com

Nov. 21: For the agnostic investor worried that AI might be a bubble, the good news is that certainty isn’t required to move to a portfolio that is less dependent on the AI trade. Plenty of other risk assets are trading at fair or even compelling valuations, and even if today’s financial markets turn out to be rationally priced, there is no long-run expected return give-up for tilting your portfolio away from the AI darlings.

Value stocks everywhere are very cheap, and in the U.S. and EAFE [Europe, Asia, and Far East] markets, deep value stocks are trading at some of the widest discounts on record. Non-U.S. small value stocks are also attractive, particularly in Japan, where they benefit from an undervalued yen and the opening of the market for corporate control. Liquid alternatives benefit from decent yields on cash and wide valuation spreads across various asset classes, and government bonds are priced to provide capital gains in a recession and a decent yield.

Ben Inker