You've been spending a lot lately, America.
Now it's time to give a look-see at stocks of companies from where you've been buying.
Consumer spending rose 0.7% in the U.S. in July, far better than the expected 0.3%, indicating the consumer remains strong in the face of what has become a broad-based fear that the country is headed for recession sooner than previously anticipated. Manufacturing activity has slowed, but it's the consumer that represents roughly 70% of U.S. GDP, giving bulls reason for optimism on U.S. stocks.
This provides an interesting backdrop for retail companies, many of which are about to report earnings.
Home Depot (HD - Get Report) reports earnings on Tuesday. The stock is up 21% year-to-date, outperforming the S&P 500's gain of almost 17% on the year. Home Depot's performance is heavily tied to consumer spend and the housing market. Those are two areas of spend investors should watch for when considering Home Depot stock.
Kohl's (KSS - Get Report) reports earnings on Tuesday, and the stock is down 28.3%. Some analysts say Kohl's, an off-priced retailer, may see higher sales and earnings when consumer spending slows down, as consumers with tighter budgets move their spend to off-priced players. Importantly, Kohl's forward one-year earnings multiple is down to 8.8, which some would call a slight discount. This may be justified, but it could very well be an indicator the stock is undervalued.
Darden Restaurants (DRI - Get Report) doesn't report until Sept. 20, but the higher consumer spending could bode well for the earnings report, as much of that spend came in the form of dining out. The stock is up 20% year-to-date. Several analysts, though, have pointed out management's precision, attention to detail, customer knowledge, and digital focus. Those qualities can see the stock through in the long term.
Related. 4 Retail Stocks to Watch This Week.