In the U.S., when the going gets tough, the tough go shopping.
There's no doubt that many Americans are hurting. Consumer confidence is abysmally low; essentials like houses and cars feel out of reach for many; and cumulative inflation has hit nearly every category of spending, ran ahead of hourly wage growth in July and August. Rising health care costs are adding to the strain.
Those factors have soured investors on consumer stocks: Both the State Street SPDR S&P Retail ETF and State Street Consumer Discretionary Select Sector SPDR ETF are down year to date, and even companies selling the basics tracked by the State Street Consumer Staples Select Sector SPDR ETF have lagged behind the broader market so far in 2026.
Nonetheless, that sentiment might be too negative. Yardeni Research President Ed Yardeni thinks so, noting on Monday that the consensus on consumers looks too gloomy.
To wit, after a weak start to the year (likely due to brutal winter weather) real consumption jumped 3.8% in the second quarter, the strongest showing in more than a year.
Nor is it just the higher cost of essentials driving that figure.
"The strength has been broad based, especially in discretionary categories," Yardeni notes, with spending in 12 of 16 categories expanding in the second quarter, and in 14 categories in August, including a nearly 2% increase in recreational goods and vehicles, and a 1.3% climb in clothing and footwear.
"Even food services and accommodations increased 0.8%. Consumers aren't just spending more on necessities."
Strong retail sales data back that up, as do credit card spending data: Bank of America found that 86% of discretionary retail categories registered spending gains in September, with more purchases -- meaning those numbers don't just reflect higher prices.
"Discretionary services contributed over three-quarters of annual services spending growth, while early holiday spending was ahead of last year's pace," Yardeni notes, while also highlighting commentary from Delta Air Lines' earnings, which showed that revenue from both premium and economy tickets was up.
Moreover, continued spending seems plausible despite the ongoing drag of inflation. Baby boomers, the wealthiest generation in history, are continuing to retire and spend down their wealth (making the overall decline in savings less worrisome). Meanwhile, many younger households are benefiting from the wealth effect: With asset prices near highs, they may feel less need to save for a rainy day.
Likewise, Morgan Stanley analyst Jeff Adelson, in his Monday preview of upcoming consumer finance earnings, writes that he expects third-quarter earnings " to reinforce the resilience of the consumer, with credit card delinquencies continuing to improve year over year and most management teams likely to reaffirm full-year guidance."
His pick is American Express, which he thinks is at risk of missing third-quarter estimates but trades very cheaply given its more defensive customer base. Barron's pick Visa is up 15% since our feature last fall.
Elsewhere, his colleague at Morgan Stanley, analyst Stephen Grambling, also highlighted the major hotel players Hilton, Hyatt, and Barron's favorite Marriott as benefiting from travel demand while being well positioned to use their proprietary data, partnerships, and pricing power to thrive in an era of artificial intelligence-fueled travel.
Continued consumer spending could also help major retailers including Walmart (a Barron's pick), support Target's turnaround, and benefit higher-end apparel retailers like Ralph Lauren.
Americans may be stressed, but they haven't given up on retail therapy.