Consumers May Just Keep This Stock Rally Going

Betting against the American consumer is usually a mistake. (Michael Nagle/Xinhua via Getty Images)

Inflation is a nagging problem for the Federal Reserve. But consumers are shrugging off the impact of higher prices. Retail sales for July rose 0.5%, in line with forecasts. And the market doesn’t seem too nervous. The Dow Jones Industrial Average is having another winning week, gaining 1.9% through midday Friday and hitting a new all-time high. The S&P 500 index and Nasdaq Composite are rallying too. Both are up about 1% this week and near record highs.

Investors in consumer stocks don’t seem as concerned about inflation, or other economic worries like weaker jobs data. The SPDR S&P Retail exchange-traded fund is up around 5% in 2025 and has soared 35% from its lows of the year, which was right around President Donald Trump’s tariff announcements in early April. Likewise, the Consumer Discretionary Select Sector SPDR ETF is up almost 2% this year and 30% from its post-Liberation Day trough.

For all the drama surrounding trade negotiations, the American consumer seems to be doing what it does best: shopping until it drops. “The Liberation Day apocalypse didn’t play out like investors feared it might,” said Scott Welch, partner and chief investment officer at Certuity, a wealth-management firm. “There have not been a lot of negative effects from tariffs in the hard data.”

Created with Highcharts 9.0.1Market SnapshotSource: FactSet

Created with Highcharts 9.0.1SPDR S&P Retail ETFDow Jones Industrial AverageS&P 500 IndexNASDAQ Composite IndexAug. 11Aug. 12Aug. 13Aug. 14Aug. 15-10123456%

Investors will get some more clues about consumer behavior this coming week when several retailers report their latest earnings, including Walmart, Target, TJX, Ross Stores, Home Depot, and Lowe’s. It will be interesting to hear whether any of these companies talk about drastically slowing demand due to tariffs.

Don’t count on it. Betting against the American consumer is usually a mistake. Brian Glenn, chief investment officer of Premier Path Wealth Partners, told Barron’s that he’s bullish on Netflix. He said the streaming leader is benefiting from more subscribers and “massive margin expansion,” adding that even if the economy does lose momentum, it’s unlikely that many people will cancel their monthly plans.

Eric Clark, a portfolio manager at the Rational Dynamic Brands fund, is also bullish on Netflix, and he likes Spotify Technology too, calling both companies “subscription services consumers will cling to even in slowdowns.” Clark said in a report that he also favors bargain-oriented retailers, specifically TJX and Costco Wholesale, which he thinks will attract even more consumers who are “feeling the pinch of inflation.”

Looking for more of a contrarian consumer stock? Glenn also favors Nike, which is more of a turnaround story under newish CEO Elliott Hill. Glenn likes how Hill has pivoted more toward social media for advertising to attract younger customers, and he thinks investors have overreacted to tariff worries. The fact that the Trump administration has struck a deal to reduce import tariffs on Vietnam from the much higher levels announced in April bodes well for Nike, since the company relies on the Southeast Asian country for a large chunk of its manufacturing.

Consumer sentiment is lousy, to be sure. But you have to watch what people are doing as opposed to how they’re feeling. They’re still clicking the Buy button online and heading to the big-box stores. That’s why retailers and other discretionary stocks are worth adding to your shopping cart.

Write to Paul R. La Monica at paul.lamonica@barrons.com