The American consumer is cautious heading into the holiday season, with big-box retailers like Target and Home Depot seeing drops in shares due to reduced spending on nonessentials. Even Walmart’s growth comes from groceries and bargain-hunting customers, reflecting consumer skittishness amid high prices and shrinking incomes.

Retailer earnings reports suggest consumers are cutting back on discretionary purchases and trading down for essentials due to economic uncertainty and inflation. Wealthier Americans are also becoming more cost-conscious, as shown by a drop in the University of Michigan’s consumer sentiment gauge, nearing record lows.

Investors are eagerly awaiting crucial Christmas shopping forecasts from retailers like Best Buy, Dick’s Sporting Goods, and Abercrombie & Fitch. Strong profit outlooks would provide a much-needed boost for US stocks, which are already down 3.5% this month, heading towards the worst November since 2008.

Walmart’s strong performance is driven by spending from higher-income households, while lower-income families face additional pressure. Off-price retailers like TJX and Ross Stores are benefiting from consumers seeking value, boosting their outlook for the holiday season.

Although holiday spending is expected to surpass $1 trillion this year and set a record, consumer caution due to higher prices may lead to a more subdued shopping season compared to last year. Retailers are facing challenges with inflation and economic uncertainty impacting holiday spending plans.

Holiday promotions and discounts will be crucial for retailers to spur holiday spending and support earnings growth into the year-end. Despite economic challenges, retailers and shoppers are preparing for the holiday sales season, with increased volatility expected for consumer stocks during the Thanksgiving week.

Read more at Yahoo Finance: Retail Stocks Need Unlikely Holiday Miracle to Save Rough 2025