Massive fiscal stimulus spending and an improving job market on the back of a national COVID-19 vaccination program have been driving growth in consumer spending in the U.S. And since retail sales are by far the main driver of the U.S. economy—accounting for about one-third of consumer spending—the retail sector is expected to grow significantly going forward on rising consumer spending. So, we think leading players in this space—Walmart (NYSE:WMT), Target (TGT), Albertsons (ACI), and Macy’s (M)—are uniquely positioned to benefit, and as such are worth more than a second look by investors. Read on.As the effects of the COVID-19 pandemic wane and the U.S. economy recovers faster than expected, retail sales are returning to pre-pandemic levels. An accelerated vaccine rollout, improving job market, and federal stimulus checks have been driving a substantial surge in consumer spending. Although this is fueling a rise in inflation as manufacturers pass cost increases onto customers, it is expected to be short-lived. Investors’ confidence in the retail industry is evident in the SPDR S&P Retail ETF’s (XRT) 15% returns over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 6.4% gains over this period.
According to the U.S. Commerce Department, consumer spending increased 4.2% in March, after falling 1% in February. Since approximately one third of the U.S. population has received at least one dose of COVID-19 vaccine, increasing numbers of people are resuming out-of-home activities and returning to a pre-pandemic lifestyle. As a result, retail store traffic is gaining significant momentum.
Since a surge in income is expected to further boost consumer spending, retailers Walmart Inc. (WMT), Target Corporation (NYSE:TGT), Albertsons Companies, Inc. (ACI), and Macy's, Inc. (NYSE:M) could emerge stronger with solid financials. So, we think it could be wise to bet on these stocks now.