Retailers rip big gains after Walmart says it does not expect a recession

The retail sector is flying on Thursday after a combination of Walmart’s (NYSE:WMT) strong earnings report, a better-than-anticipated July Retail Sales report, and the release of key 13F filings boosted sentiment. Those factors combined may have pushed aside some of the recession fears of investors that have been building up.

Walmart (WMT) jumped 6.2% and carved out a new all-time high in early trading after the retail giant’s Q2 earnings update and outlook buoyed sentiment. During the earnings call, Walmart (WMT) executives said that the company was not seeing any weakness in August and pointed to the narrowing losses for the e-commerce business. While Walmart (WMT) did see some high-income shoppers step down into their stores, CFO John Rainey expressed confidence in the broad economy. “In this environment, it’s responsible or prudent to be a little bit guarded with the outlook, but we’re not projecting a recession,” he noted. Crucially, Rainey said the back-to-school season is off to a good start.

On Wall Street, Morgan Stanley analyst Simeon Gutman said the most important elements of the Walmart (WMT) release was the solid comparable sales growth in a choppy retail environment and that EBIT growth outpaced sales growth due to core and alternative profit streams. Jefferies analyst Corey Tarlowe said his firm continues to see potential upside ahead as Walmart (WMT) traffic remains strong and e-commerce losses improve. “We expect automation tech & AI to continue to play integral roles. WMT’s strength continues, and with this improved consistency, as well as scaling of higher-margin rev streams, we believe a higher multiple is warranted,” he highlighted.

The SPDR S&P Retail ETF (XRT) was up 3.38% in early trading to outpace the broad market. Notable gainers included Ulta Beauty (ULTA) +11.5% after Berkshire Hathaway took stake, Honest Company (HNST) +9.7%, Five Below (FIVE) +9.0%, Wayfair (W) +8.0%, Beyond (BYON) +8.5%, Sally Beauty (SBH) +7.2%, Nordstrom (JWN) +6.3%, Gap (GPS) +5.3%, e.l.f. Beauty (ELF) +5.3%, Macy’s (M) +4.9%, and Target (TGT) +4.8%. Discounters Dollar General (DG) and Dollar Tree (DLTR) were also both up more than 4%. Amazon (AMZN) showed a gain of 3.1%.