Wall Street's Retail-Earnings Gauntlet Arrives as Consumers Show New Strain

Wall Street heads into the week without the benefit of Monday-morning momentum. Markets are still closed as this is written, so the most recent official prices remain Friday's close, when the S&P 500 pulled back from a record set earlier in the week and investors absorbed the weakest University of Michigan consumer-sentiment reading in months. The next five sessions carry unusual weight: quarterly results from Home Depot, Target and Walmart will offer the clearest look yet at whether American shoppers are still spending as gasoline, food and energy costs run hot on the back of the Iran war's disruption to Middle East oil flows.

Friday's session was itself a retreat. The S&P 500 slipped about 0.17% to close at 7,786, the Dow Jones Industrial Average fell 0.20% to 53,732, and the Nasdaq Composite dropped 0.28% to 26,729, according to Yahoo Finance's market wrap. Even with the pullback, the S&P notched its third straight weekly gain, and the small-cap Russell 2000 touched fresh records three times during the week, a sign the rally has been broadening beyond mega-cap technology names. Broadcom was the session's biggest laggard among large caps, sliding nearly 6% to $392.99 after a bond-rating warning tied to its debt-financed AI infrastructure buildout.

A consumer running out of runway

The bigger story sat in the data, not the tape. The Commerce Department's July retail sales report showed headline spending fell 0.6% from June, the sharpest drop in more than a year and a reversal from the modest gain economists had expected. Core sales, which strip out categories like autos and feed directly into GDP calculations, fell 0.4%, the worst reading since early 2025. Hours later, the University of Michigan's preliminary August sentiment index came in even worse: it tumbled to 51 from July's 55.2, snapping two straight months of improvement and missing the roughly 55 economists had forecast. Coverage of the survey tied the decline to fuel, food and energy costs stemming from the Iran war, with the pain concentrated among lower-income households, older Americans and those without a college degree.

That combination cuts two ways for markets. Weaker spending and sentiment reduced traders' expectations that the Federal Reserve will raise interest rates at its September meeting — bond markets were pricing roughly a 35% chance of a quarter-point hike by Friday afternoon, down sharply from about 55% a week earlier, based on data cited by Bloomberg. The dollar fell for a third straight session on the shift, touching its weakest level since late May. But the same data raises a harder question for the retailers about to report: are consumers pulling back because the labor market is cooling, or because a barrel of oil trading near $88 is quietly taxing every other purchase they make?

The week's real test arrives Tuesday

Home Depot opens the retail parade before Tuesday's bell, with Wall Street looking for earnings of roughly $4.73 a share as the company grapples with homeowners delaying big-ticket renovation projects. Target follows Wednesday, with analysts penciling in about $2.25 a share on roughly $26.1 billion in revenue — a discretionary-heavy business that is especially exposed after the retail-sales report showed apparel, home and general-merchandise spending softening. Walmart closes out the trio Thursday, expected to post $0.74 a share on close to $186.7 billion in revenue; as the country's largest low-price grocer, its results are often read as a referendum on how far down the income ladder financial strain has spread. Lowe's and TJX round out the calendar, according to Kiplinger's earnings preview.

Layered on top of the retail results is an energy backdrop that shows no sign of easing. Brent crude has traded in the high-$80s a barrel for weeks as the Strait of Hormuz remains largely closed to tanker traffic, and the International Maritime Organization has tied dozens of attacks on commercial vessels since February to the conflict. "The lack of concrete movement keeps a risk premium in the price. Each day without a breakthrough makes traders more cautious," KCM Trade analyst Tim Waterer told Al Jazeera. Every extra dollar on a barrel of crude works its way into gasoline pumps and grocery freight costs before it ever shows up in a retailer's earnings call.

None of this means the bull market is over — the S&P 500 is still up sharply for the year and small caps just hit records — but it does mean the next few sessions will test whether corporate America's most consumer-facing companies can keep delivering upside surprises against a backdrop of softer spending, a jumpier Fed outlook and oil prices that refuse to come down. Investors are also looking two weeks out to the Fed's Jackson Hole symposium and, the week after, Nvidia's earnings, for further signals on rates and AI-driven capital spending.

For now, Monday brings no scheduled economic data of consequence, leaving traders to digest Friday's numbers and position ahead of Tuesday's Home Depot report — the first hard evidence of how the world's largest retailers are navigating an economy caught between resilient hiring and a consumer that just told researchers, in the bluntest terms in months, that it is starting to feel squeezed.