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Quarterly releases from Walmart (WMT - Free Report), Target (TGT - Free Report), and other retailers reconfirm what we have been seeing repeatedly in the Q1 earnings season, with companies not only handily beating consensus estimates but also providing reassuring enough guidance for the coming periods.

With respect to the Retail sector, consumer spending still remains resilient even though the macroeconomic outlook remains uncertain, with many in the market expecting a recessionary scenario unfolding in the coming quarters. This overall strength in spending notwithstanding, spending behavior is changing.

The Walmart report showed that demand for essentials like groceries and food items remains resilient, while discretionary items are taking a back seat, as we saw in the Target report. The ‘trade down’ trend still remains in place, which also favors Walmart. Consumers’ tentativeness on discretionary spending categories appears to be centered on ‘goods’, as demand for ‘experiential services’ still remains strong. We see this in the results from leisure, hospitality and travel related operators.  

Beyond these retail results, the overall earnings picture remains good enough; not great, but not bad either. This ‘good-enough’ nature of earnings results runs counter to the bearish narratives that suggest an earnings cliff ahead.

Even more importantly, the latest trend on the revisions front suggests a reversal of the negative revisions trend that had been firmly in place for almost a year now. Estimates appear to have started to stabilize and even modestly inch up for some sectors.

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