Retailers take center stage in the week ahead, as Wall Street turns to the consumer for a much-needed boost

Published Fri, Aug 11 20232:27 PM EDTUpdated Fri, Aug 11 20235:05 PM EDT

A raft of economic data and big retail earnings reports next week will give traders insight into the strength of the consumer after a mixed batch of inflation data. Investors will parse July's retail sales data, which will come out Tuesday, as well as July's building permits and housing starts numbers, due Wednesday. A slew of key retail reports are also on deck, including Home Depot and big-box merchandisers Target and Walmart . If those reports come in stronger than expected, that could highlight the continued strength of the economy given a surprisingly resilient consumer — though it could also mean the Federal Reserve still has some way to go in its fight against inflation. "Next week is all about the consumer," said Shannon Saccocia, investment chief at NB Private Wealth. "We still are continuing to see the global economy driven by the U.S. consumer in particular. So, anytime we get a read on the U.S. consumer to see if they're going to continue to be able to continue to spend at the rate that they are, without as much fiscal and monetary stimulus, that's why this week is so important," Saccocia added. The Nasdaq Composite fell for a second straight week for the first time in 2023 after mixed inflation data this week, as well as Moody's downgrading several regional banks. The S & P 500 also notched a second straight losing week. Meanwhile, the Dow Jones Industrial Average was the only major average that ended the week higher. July's consumer price index came in weaker than expected, but continued to show some underlying stickiness. Meanwhile, July's producer price index — which measures the prices wholesalers pay for goods — came in hotter than expected. That raised fears on Wall Street that interest rates could remain higher for longer. "The market is starting to act like the inflation bogeyman has already been beaten, and I would say that we've got the inflation bogeyman in retreat," said John Porter, investment chief and head of equity at Newton Investment Management. "But it's not gone." How retailers deal with sticky inflation July retail sales data will show investors how consumers are spending money even with elevated prices. Economists polled by FactSet expect the reading will show a rise of 0.4%, which would continue to show strength from the prior month. Retail sales data for June showed a 0.2% increase. However, market participants are awaiting commentary from major merchandisers, which will give more real-time insight into the effects of inflation on the consumer. While July's consumer price index continued to show declining inflation, core CPI — which excludes volatile and energy costs — gained 4.7% on a year-over-year basis. "Although it really didn't show up to any meaningful extent in the July [CPI] print, we anticipate that this reacceleration in food — food at home, specifically — and potentially energy could continue in through the back half of August," NB Private Wealth's Saccocia said. "And so, any commentary from these major retailers about the threat of reacceleration and also the threat to discretionary spending from the resumption of student loan payments in the fall, I think, is going to be particularly notable," Saccocia added. She added traders should keep an eye on how merchandisers are mitigating increased shoplifting at retailers such as Target. She said an inability to handle theft could be another cost that may be handed down to consumers. Key retailers reporting next week include big-box merchandisers Target and Walmart, which will report Wednesday and Thursday, respectively. Discount retailers TJX Companies and Ross Stores will also be reporting this week. For insight into the luxury consumer, investors can also review earnings from luxury fashion company Tapestry , which owns the brands Coach, Kate Spade and Stuart Weitzman. Tapestry's earnings will come after this week's announcement that it will acquire fashion company Capri in a roughly $8.5 billion deal. Capri is the company behind the Versace, Jimmy Choo and Michael Kors brands. "I think it's going to be a very timely update, particularly from company management, on how they're managing all of these cost levers in this environment," Saccocia said. Housing data expected to show strength Investors will also watch data on what has been a strong housing market. Homeowners, eyeing high interest rates, have been staying put in their homes. That's led to a low level of supply in the market. On Wednesday, July housing starts data, which measures the number of housing units started in the U.S., is expected to show a rise of 1.435 million units, according to a consensus estimate from FactSet. That's up from 1.434 million units the prior month. On the same day, preliminary data for July building permits — or the number of new housing units that have been authorized — is expected to show a reading of 1.442 million, also up slightly, from 1.441 million in the previous month. Other economic data is also set to show strength from the prior month, which could paint a rosy picture of the economy. Industrial production is set to show a rise of 0.5% in July, according to economists polled by FactSet. That's a turnaround from the 0.5% decrease the prior month. Industrial production measures the output of the sector that includes manufacturing and mining, as well as electric and gas utilities. "It's sort of a double-edged sword, because it does tell me that the economy is strengthening and therefore not likely to fall into a recession anytime soon. However, if the economy ends up being too strong, then that's going to give the Fed additional reason to be raising rates," CFRA's Sam Stovall said. "So, I think that's why it's important that all of the economic data be evaluated and that, in a sense, the summary of that data through the inflation indicators is regarded as being quite important," Stovall added. August off to a tepid start These releases are slated to take place as investors deal with some seasonal weakness in August. The three major averages are down since the start of this month. The tech-heavy Nasdaq Composite has been the worst-performing benchmark, off by more than 4% even as it remains 30% higher this year. For investors, that could spell more choppy and sideways trading action in the week ahead, as they worry that stocks have gotten too high too fast. CFRA's Stovall noted the S & P 500 is "12% more volatile in August" than in other months. Still, next week could show how much the U.S. consumer continues to buoy the economy even as challenges remain on the horizon. Other key events in the week ahead include the Fed's latest meeting minutes, set to release Wednesday. Week ahead calendar Tuesday, Aug. 15 8:30 a.m. Export Price Index (July) 8:30 a.m. Import Price Index (July) 8:30 a.m. Empire State Index (August) 8:30 a.m. Retail Sales (July) 10 a.m. Business Inventories (June) 10 a.m. NAHB Housing Market Index (August) Earnings: Cardinal Health , Home Depot , Agilent Technologies Wednesday, Aug. 16 8:30 a.m. Building Permits SAAR Preliminary (July) 8:30 a.m. Housing Starts (July) 9:15 a.m. Capacity Utilization (July) 9:15 a.m. Industrial Production (July) 9:15 a.m. Manufacturing Production (July) 2:00 p.m. FOMC Minutes Earnings: Progressive , TJX Companies , Target , Synopsys , Cisco Systems Thursday, Aug. 17 8:30 a.m. Initial Claims (week ended 8/12) 8:30 a.m. Philadelphia Fed Index (August) 10 a.m. Leading Indicators (July) Earnings: Tapestry, Walmart , Applied Materials , Ross Stores Friday, Aug. 18 Earnings: Deere & Co. , Estee Lauder Companies , Palo Alto Networks