3 Retail Dips Backed by Rising Consumer Demand

Key Points

• TradeSmith consumer demand data rose 7.9% year-over-year in August, even as retail stocks sold off.
• Walmart and Home Depot are taking wallet share from Target and Lowe's as shoppers hunt for value.
• Amazon pairs resilient consumer demand with accelerating data center spending tied to the AI buildout.

The Federal Reserve raised interest rates in September for the first time since 2023, lifting the federal funds target range to 3.75% to 4%, and updated projections showed a strong majority of officials think another increase is possible before year-end. Retail stocks had already spent weeks trading as though that outcome would break the American shopper.

Andy Swan thinks the market is reading the wrong data set. Swan is co-founder of LikeFolio and a lead analyst at TradeSmith, where the team tracks millions of social mentions, website visits and app downloads to measure what consumers are buying in close to real time. His read is that the retail sell-off is a sentiment event rather than a demand event, and that it has handed long-term investors discounted entry points into three of the most durable consumer franchises in the United States.

That's the tension. Wall Street is pricing a slowdown the spending data has not produced yet.

Consumer Demand Rose 7.9% Year Over Year in August

Swan's headline number: across the consumer-facing companies TradeSmith covers, consumer demand in August was up 7.9% compared with a year earlier. Not flat. Not decelerating.

His explanation comes down to who carries the load. The top 10% of spenders drive a disproportionate share of U.S. consumption, and a quarter-point move in the policy rate barely registers for that cohort. What Swan does see is shoppers getting pickier about value rather than pulling back on volume.

That matters because inflation and higher-for-longer rates are no longer new information to households. Oil has spiked and retreated. Rates have moved around. Through all of it, Swan says his demand signals across multiple sectors have kept climbing for the past three to four months.

Walmart Is Pulling in Higher-Income Shoppers as the Stock Slides

Walmart NYSE: WMT is the cleanest expression of that trade-down behavior. Swan says his Walmart demand signal is running at multi-year highs, powered by exactly the shoppers who once would have filled their carts at Target NYSE: TGT.

The e-commerce build-out is the part he thinks is underappreciated. Walmart spent a decade losing online share, and Swan argues the app and delivery experience is now genuinely competitive, with same-day fulfillment closing the convenience gap.

The stock has not cooperated. Shares have traded in the $105 to $110 range against a 52-week span of roughly $98.88 to $135.16, and the August quarter triggered a nearly 9% single-day drawdown despite an earnings beat and raised full-year guidance. Swan's framing is that Walmart's business is far less cyclical than specialty retail, even when the tape says otherwise, and that a company winning lifetime customers at a discount is an asymmetric setup.

Home Depot Has a Second Renovation Wave Building

The Home Depot NYSE: HD has been hit harder, with shares down roughly 27% over the trailing year and close to 30% below their 52-week high.

Swan's data points the other way. He puts Home Depot consumer demand up 15% year over year, the strongest reading since the pandemic-era do-it-yourself boom. His read is that homeowners sitting on 3% mortgages have accepted they aren't moving, and are redirecting money into kitchens, basements, outdoor spaces and appliances. The September hike only reinforces that lock-in.

He also pushes back on the DIY-only framing. Home Depot captures most of the professional contractor business too, which means a remodel hired out still runs through the same registers, often ahead of Lowe's Companies NYSE: LOW.

The upside case has two legs. Management has guided conservatively while fuel and rate pressures persist. If those pressures stabilize, Swan expects earnings per share (EPS) expectations to rise at the same time Wall Street grants a higher multiple. He sees that thaw arriving in the fourth quarter or early 2027, which is a projection rather than a schedule.

Amazon Stacks a Resilient Shopper on Top of AI Infrastructure Demand

Amazon.com NASDAQ: AMZN is the one that's different. Swan sees consumer demand signals at or near all-time highs, plus exposure to an AI buildout he describes as accelerating rather than cooling.

The evidence is in the backlogs. Amazon's AWS backlog reached $496 billion in the second quarter, and Alphabet NASDAQ: GOOGL reported a $514 billion cloud backlog, up from $460 billion in the first quarter and $106 billion a year earlier. Both figures dwarf what either segment has actually recognized in revenue over the trailing 12 months. Swan's point: contracted work that large is not a plateau.

His argument on the spending itself is blunt. Capital expenditure (CapEx) at this scale looks reckless from the outside, but these operators can see customer demand in real time, and stepping back would cede ground to Microsoft NASDAQ: MSFT and Alphabet.

The Risk Side of the Trade

The bear case is arithmetic. Higher fuel and borrowing costs do feed through to last-mile delivery, freight and financing, and some of that reaches the shopper. Amazon has raised 2026 CapEx guidance to roughly $220 billion, which has pushed free cash flow negative and left the payback window as the central debate.

Swan's counter is that the consumer is already spending more while absorbing oil above $100 and rates well above the last decade's norm. That, he argues, is a stressed consumer still growing. If those pressures ease, the companies taking share right now have the most operating leverage for the recovery.

Watch consumer demand trends rather than Fed headlines, because that's the input that eventually shows up in earnings.