Is the core driving force behind the rebound in US stocks real? Stay tuned for next week's outcome

With the US economic data improving and Walmart's strong profits, the US stock market has started a major rebound and regained all lost ground since early August. However, the optimistic expectations for the US economy still need to be verified.

Next week, US retail giants Target Corp, Macy's Inc., and TJX Cos. will release their financial reports, and Wall Street will closely monitor them to find more evidence of the resilience of the US economy.

Walmart's Strong Performance Due to Consumers Turning to Low-Priced Products

Although Walmart's performance appears strong, with net sales expected to grow by as much as 4.75% this year, a deeper analysis reveals some signs of unhealthy consumption.

Analysis indicates that Walmart shoppers are buying necessities rather than high-priced products, and the company's growth is achieved by taking market share from competitors.

John Zolidis, founder of consumer consultancy Quo Vadis Capital, stated:

This is not a truly positive, comprehensive, clear signal. If you consider most of the data we see, all company comments indicate that we are still in a state of weak consumption, which will lead to conclusions drawn from other retailers.

Michael Landsberg, Chief Investment Officer at Landsberg Bennett, believes that Walmart has always claimed to have low prices and has lowered prices on many things, indicating that the US corporate sector sees a slowdown in consumption.

Consumer spending is the biggest driver of US economic growth, accounting for two-thirds of it, making retail earnings particularly important. Although many companies in this sector have not yet released results, other consumer-facing companies paint a pessimistic picture, with rising costs squeezing budgets and pandemic savings decreasing.

McDonald's and Papa John's reported flat quarterly sales as Americans dine out less. Meanwhile, packaged food makers Hershey Co. and Kraft Heinz Co. have lowered their revenue forecasts for the year. Updates from Airbnb Inc. and Expedia Group Inc. suggest that consumers are becoming more selective when booking holidays.

More Retail Stocks to Verify the Health of Consumer Spending

Looking ahead, investors will closely watch the performance of Target, Macy's, and TJX on Wednesday, with Best Buy Co. and Dollar General Corp. reporting later this month.

D.A. Davidson analyst Michael Baker has already lowered profit forecasts for several companies, including Target and Ulta Beauty Inc., for the second quarter and the second half of the year before the results are announced. He believes that retailers are more likely to lower rather than raise performance guidance in the second half of the year. According to Baker, Walmart is a big winner. Its focus on discounts, coupled with better execution, especially in e-commerce, is helping the company gain market share and attract higher-income shoppers The cooling of inflation is another key factor affecting spending, as the latest data from the US Bureau of Labor Statistics shows that the potential inflation rate in the US has been declining year-on-year for the fourth consecutive month in July. Cayla Seder, macro multi-asset strategist at State Street, stated:

Recent data shows that consumers are still strong but slowing down, which is consistent with the Fed's preparation to start a slow rate cut.

The Jackson Hole Global Central Bank Annual Meeting will be held next week, and it is expected that Federal Reserve Chairman Powell will deliver a speech. He has previously stated that a rate cut in September is "on the table," which will help consumers manage their bills