Even those who study the markets and economy every day can’t keep track of what’s happening with tariffs and when their effects could show up in the economy, if they show up at all. Now, imagine the plight of executives leading consumer-focused companies.
Spending behavior shows buyers are becoming hesitant as they note higher prices due to trade-driven uncertainty, making it harder for executives to expand margins and increase volumes. That’s the new world order of 2025, where companies are clamoring for consumers’ money by making smaller snack packs, stacking deals on deals, bringing back some old menu items, and more.
The hope is that such maneuvers will keep consumers afloat, so the companies themselves can continue doing the same.
The pressure on them is particularly high right now because major stock indexes have posted extraordinary gains since the April 8 low. The S&P 500 has climbed about 25% since then, while the Nasdaq Composite has jumped roughly 35%. The gains in both have been led by the Magnificent Seven group of tech stocks that have increased nearly 40%. Its member Nvidia NVDA has been a star performer, hitting $4 trillion in market value this week, as it continues its record run. (For the purposes of this Signal From Noise, all share-price moves have been calculated from April 8 unless otherwise specified.)
Of course, consumer companies, too, have quietly rallied. The SPDR S&P Retail XRT exchange-traded fund has added over 30%. Among its top 10 holdings are shares of Dollar General DG, Carvana CVNA, and Ollie’s Bargain Outlet OLLI, which have added 29%, 95%, and 23%, respectively.
But the main question is whether those gains, which are sensitive to consumer spending behavior and sentiment, can hold in an increasingly uncertain economic environment. That’s especially pertinent because there seems to be no way out of the fog for now. The latest example for that came this week when the president further delayed the July 9 deadline for tariffs to go into effect to Aug. 1.
Consumer stocks are perhaps the first in line to see impact when tariffs are applied because a chunk of them get their inventory from abroad, and there’s only so much they can absorb before passing down costs to consumers.
In the case of softline retailers, which are businesses that primarily sell merchandise like clothing, footwear, home textiles, and accessories, tariffs could cut earnings-per-share by a 35% average, Morgan Stanley analysts wrote in a note. Meanwhile, hardline retailers, or sellers of durable goods like appliances and electronics, could reduce their EPS forecasts by 33%, the note said.
Of course, the impact will differ across companies and sub-sectors, varying in response to a retailer’s exposure to China and other countries in Asia, their existing inventories, and more, the analysts wrote. In the case of softline retailers, suppliers typically are able to take on 50% of any incremental tariff burden. But that will be harder this time around, because consumers are already strained from the past 3-4 years of living under higher prices.
How these companies fare is a direct window into how consumer strength is holding up. So watching how they’re doing is important to estimating consumer spending, the biggest driver of the economy.
So far, consumers have remained resilient and that has kept the economy resilient. Median household spending growth expectations in June declined by a mere 0.2 percentage points to 4.8%, according to Federal Reserve Bank of New York data. Sure, surveys like the University of Michigan consumer sentiment signal that this strength could erode in the coming months, but it’s important to remember that sentiment-survey data is heavily clouded by political bias.
It’s likely also going to be a while before the impact from tariffs seeps into the economy. A study from the Danish central bank shows that though “trade policy uncertainty [has] significant negative effects on economic activity . . . it takes up to a year for the effects to materialise.”
So with all the worries raised, let’s take stock of consumer-facing companies, and all their joys and sorrows.
Major retailers
These companies are potentially the least exposed on the retail side to tariffs.
They are so big and ubiquitous that their size allows them better negotiation ability with producers and manufacturers, which helps their margins. It also helps that they’re able to change product composition to secure better prices, and in some cases, they have trained customers to have a treasure-hunt mindset.
Trading these stocks has been so popular this year, that some analysts have even given it a cute nickname of CoW, standing for the shares of Costco, O’Reilly, and Walmart.
“During times of uncertainty, we think owning the stocks of best-in-class retailers could provide a measure of safety,” wrote UBS analyst Michael Lasser in a note, according to Barron’s. It makes sense because consumers are always going to buy toilet paper, even if it costs more.
Costco COST this week reported net sales rose 8% to $26.44 billion for the retail month of June from a year ago. Back in May, that same number had increased 6.8%. Its shares have added 6.8%.
Tariffs have supercharged the auto market, in turn benefiting O’Reilly ORLY, whose shares are up 4.5%.
Meanwhile, Walmart WMT has boosted its revenue without increasing the number of workers, thanks to automation. Walmart counted 2,165,465 staff worldwide as of the end of last year. That was almost 70,000 fewer than five years ago. And executives expect to keep growing sales without increasing headcount. Its shares are up 15%.
If Walmart stays lean, it’s going to help boost its bottom line.
Amazon.com AMZN is another good example of a player in this space. It has lagged this year, and its struggles were on full display this week, as it turned this year’s Prime Day into Prime Week. Its sales declined 41% on the first day of the four-day event compared to last year. Maybe the decline indicates that there’s only so much demand for goods these days. It looks particularly shoddy when compared with last year’s record sales.
Its expansion into the cloud space could help turn investors bullish on it again. Josh Brown of Ritholtz Wealth Management is among those who are focusing on that perspective.
It’s “not getting enough credit for how important AWS is going to be for the remainder of the AI decade,” he said during a segment on CNBC. Amazon shares are up 32%.
Fast food
Strapped for cash, Americans are looking to eat out cheaply at casual places, and fast-food could stand to benefit. In the latest retail sales report, monthly spending at restaurants fell 0.9% in May from the previous months, the Census Bureau reported. The agency also revised down April’s previous gain of 1.2% to 0.8%.
Foot traffic at full-service, sit-down restaurants was largely flat, while fast-food places have seen a sharp revival, as noted by Barron’s, which cites Placer.ai data, a location analytics platform that tracks consumer behavior and foot traffic patterns.
The best example for how these restaurants could fare comes from McDonald’s MCD, and that’s because it brought back the snack wrap, which started selling in the U.S. this week at $2.99. Personally, I think nostalgia sells these days, and it also helps that it is delicious. (Yes, I tried it Thursday when it started selling.)
Customers’ initial response only emboldens that bullish take. Guillaume Huin, senior marketing director at McDonald’s, enclosed the first day in an X thread here. Biggest takeaway: “Many restaurants sold in a day what our highest forecast planned for an entire week, if not more.”
In other words, demand is red-hot.
Goldman Sachs analyst Christine Cho recently upgraded the restaurant stock to buy from neutral.
“We believe MCD ultimately has the scale/marketing/digital advantage to successfully navigate through this environment. Management has firmly committed to market share gains through product and marketing innovation (including return of snack wraps, addition of daily double burger to the McValue platform in the U.S.), and we think this could drive a reversal to positive comp trends,” Cho said, according to CNBC.
McDonald’s shares are mostly flat since April 8.
Starbucks SBUX, too, is making big moves. The coffee-chain, under its new, vaunted Chief Executive Brian Niccol, is betting on human capital in the age of AI. It has come under pressure this year from losing market share in China.
But in some ways, its worst nightmare seems to be playing out right now. One of its largest overseas competitors, Luckin Coffee, entered the U.S. by opening stores in New York City in recent weeks, hoping to pressure already sluggish Starbucks sales in the U.S.
Starbucks, for its part, has received “a lot of interest” in the sale of a stake in its China business. It remains to be seen if focusing its efforts outside China could help it. Shares have added 24% since the market low.
Airlines
Their bleak start to the year seems to be taking a turn for the better. Delta Air Lines DAL shares jumped this week after it forecast a stronger third quarter than it expected earlier in the year.
The airline expects earnings of $5.25 to $6.25 a share this year, down from the more than $7.35 a share it forecast in January, but an improvement upon the previous expectations.
“People are still traveling,” Delta Chief Executive Ed Bastian said to CNBC. “What they’ve done is they’ve shifted their booking patterns a little bit. They’re holding off making plans until they’re a little closer in to their travel dates. And so that’s shifted some of our bookings and yield management strategies.”
In April, when tariff worries were all that executives could think about, Delta said it was too hard to predict its performance for the rest of the year. That was concerning because the summer season is usually the busiest time for airlines, with kids out of school and families looking to make memories. Delta’s improved outlook means that consumers’ financial health might be in better shape than expected as they’re booking trips closer to vacation, when prices are typically higher.
Delta shares added 12% this week and 58% since the market low.
That improved outlook has helped carry United Airlines UAL shares up 7.1% and American Airlines AAL 5.3% this week. They’re up 56% and 35% since April 8.
Beauty
E.l.f. Beauty ELF, popular among women for its affordable cosmetics, has doubled down on its focus area. In May, it bought American model Hailey Bieber’s cosmetic and skin-care line, Rhode, for $1 billion. Sephora will begin selling the brand this fall.
The acquisition helps e.l.f. diversify its supply chain outside of China, which has been a big target of Trump during tariffs negotiations. Many of Rhode’s suppliers are based in Europe, the U.S. and other parts of Asia, e.l.f. Chief Financial Officer Mandy Fields told the Wall Street Journal.
The cosmetics company also posted stronger-than-forecast quarterly results, and said it was unable to provide annual guidance due to tariff uncertainty.
Shares have added about 115%.
Ulta Beauty ULTA can also provide exposure in the beauty segment, with shares up 45%. Goldman Sachs analysts, according to MarketWatch, said earlier in the spring that Ulta’s shares had “likely reached a bottom,” arguing that the beauty industry had “largely normalized” after pandemic-related demand fluctuations.
A D.A. Davidson analyst says an analysis of Ulta’s best-selling products suggests that competition pressures are subsiding, thanks in part to the company’s efforts to stock its stores with newer products.
“The biggest takeaway is that Ulta seems to have more differentiation versus competitors than what we saw in January,” D.A. Davidson analyst Michael Baker said in a research note on Monday, as reported by MarketWatch.
As always, Signal From Noise should not be used as a source of investment recommendations. We encourage you to explore our full Signal From Noise library, which includes deep dives on drone wars, the presidential effect on markets, the America First trade, and wonky economic indicators. You’ll also find discussions about the use of artificial intelligence in health care, the TikTok demographic, and weight loss-related investments.