With retail titans Walmart and Target reporting earnings this week, and Black Friday fast approaching, equity investors have been bidding up consumer ETFs like the Vanguard Consumer Staples ETF (VDC).

Prior to this morning’s earnings call, analysts expected Walmart to report strong performance, with revenue projected at $167 billion, reflecting growth across income levels and a robust digital advertising business that boosts profit margins.

Walmart’s competitive pricing and focus on convenience, such as faster delivery for Walmart+ members, are seen as key drivers of its success. WMT stock is up more than 60% year-to-date but may face downside pressure as some investors may not feel its 35.4 price-to-earnings ratio is justified.

Reporting before the bell tomorrow, Target is anticipated to face continued pressure from retail theft and organized retail crime, which has weighed on profit margins and earnings in previous quarters.

In Monday trading, WMT shares were down 0.5% while investors bid TGT shares 2% higher. Consumer ETFs outperformed the broader market as VDC rose 0.7%, while the Consumer Discretionary Select Sector SPDR ETF (XLY) gained 0.9%.

VDC, Consumer ETFs, and the 2024 Holiday Shopping Outlook

A range of factors support a robust holiday shopping season in 2024, potentially lifting VDC and other consumer-related and retail ETFs, although inflation and tighter budgets still weigh:

• Strong consumer confidence: Positive consumer sentiment, fueled by factors like job growth and wage increases, is likely to drive increased spending.

• Reduced inflation pressures: While inflation still persists, the costs of goods and services have slowed since last year. Slower inflation has led to lower borrowing rates, which can fuel higher spending.

• Holiday season promotions and discounts: Retailers are expected to offer attractive deals and competitive promotions to entice choosy shoppers, further stimulating consumer spending.

• Lingering pent-up demand: Pandemic-related restrictions are now almost non-existent, and consumers may remain eager to continue the shopping spree on experiences and goods.

Bottom Line for Retail Stocks, Consumer ETFs

Overall, the outlook for retail stocks and consumer ETFs in the 2024 holiday shopping season appears positive, but it's essential to monitor economic indicators and consumer sentiment for any potential shifts.

For example, economic uncertainties, such as persistent inflation and record consumer debt levels, may weigh heavily on consumer spending during the 2024 holiday shopping season. This combination of higher costs of goods and services and tighter budgets may constrain some consumers' ability to spend more than last year.