Walmart leads the charge with retail earnings reports! If U.S. consumer spending "cools but doesn't stall," the "soft landing trades" are expected to receive another boost.

Despite the high prices of gasoline and food, American consumers have exhibited surprising resilience in their spending this year, much to the delight of investors. However, economists at Goldman Sachs Group, Inc. warn that this strong resilience may soon be put to the test. A newly released set of consumption data, including inflation and retail sales figures, is marginally positive for reducing Federal Reserve rate hike expectations and significantly boosting the outlook for a "soft landing" for the U.S. economy, provided that the current slowdown remains a "normalization of demand" rather than a slide into recession. In a recent report led by Jan Hatzius, a senior economist at Goldman Sachs Group, Inc., the team noted that U.S. business sales directed at consumers maintained healthy growth in the second quarter. Driven by a larger-than-expected scale of tax refunds, the median second-quarter sales of non-essential consumer goods companies in the S&P 500 increased by 5.9% year-over-year, while the median sales of essential goods companies rose by 3.9% year-over-year. The strong performance in consumer spending has been widespread. For businesses serving both low- and high-income consumers, same-store salesa key indicator in retailhave accelerated. Meanwhile, July retail sales fell 0.6% month-over-month, marking the largest decline in 14 months, while sales in a control group closely related to GDP dropped by 0.4%; however, technical factors such as Prime Day being moved up to June and earlier excessive tax refunds had played a role, and the actual U.S. GDP in the second quarter still grew at an annualized rate of 1.5%, with personal consumption expenditures increasing by 3.2%. Goldman Sachs Group, Inc. economists led by Jan Hatzius forecast that real consumption growth will slow to 1% to 1.5% in the second half of the year, essentially returning from the exceptionally strong tax refund-driven levels of spring to a more sustainable rate. This week's earnings season for retail giants such as Walmart Inc. and Target Corporation, which will focus on their performance, serves as one of the most important micro windows to validate if the U.S. economy can continue on a "soft, but not sluggish" path toward a soft landing. As the tax refund benefits wane, will U.S. consumer spending soon "slow down"? However, clouds have begun to gather on the horizon. Economists led by Hatzius write: "We expect consumer spending growth to be relatively weak in the future. Although last Friday's reported decline in July retail sales partially reflected the negative impact of Amazon Prime Day being held earlier than in previous years, the revised month-over-month trajectory now aligns more closely with our assessment that the strong performance in actual consumer spending in spring was merely a temporary byproduct of the surge in tax refunds. With actual cash flow stagnating, we anticipate that real consumer spending growth will decelerate to 1% to 1.5% in the second half of the year." It is noteworthy that the U.S. economy grew just 1.5% year-over-year in the second quarter (the annualized quarter-over-quarter benchmark), further slowing from the 2.1% growth in the first quarter. Despite the overall economic growth slowing, personal consumer spending accelerated to a year-over-year growth of 3.2%, exceeding the unexpectedly weak growth of 0.5% in the first quarter, and serving as the main growth engine for underlying private domestic demand. Household spending was driven by increases in both goods and services consumption, particularly in prescription drugs, motor vehicles, and food services. Procter & Gamble Company's Chief Financial Officer Andre Schulten stated in a media interview in late July, "Overall, American consumers are in decent shape, and the situation is generally stable." However, Schulten explained that Procter & Gamble Company has observed a trend of divergence among consumers of different income groups. High-income consumers are still willing to spend robustly on Procter & Gamble's latest innovative products, while low-income consumers, who rely on their monthly wages for living, remain cautious in replenishing everyday items and deciding which products to purchase from the shelves. Goldman Sachs Group, Inc.'s assessment of "slowing consumer spending in the second half of the year" will be significantly tested this week by earnings and outlooks from Home Depot, Inc., Lowe's, and Walmart Inc. and Target Corporation. Among these companies, Walmart Inc. and Target Corporation's performances will likely attract the most market attention, particularly regarding their outlook for the third quarter. Deutsche Bank Aktiengesellschaft analyst Krisztina Katai noted in a report on retail giant Walmart Inc. that, In a context of cautious consumer attitudes and potentially more frequent promotions, achieving further unexpected sales growth may become more difficult. With retail, employment, and inflation cooling off, Goldman Sachs Group, Inc. bets against a rate hike in September, as "soft landing trading" receives renewed momentum. The latest batch of economic and consumption data is marginally positive for the U.S. "soft landing," provided that the current slowdown remains a "normalization of demand" rather than a descent into recession. For the asset pricing system, the ideal outcome is not a retail "blowout," but "moderate consumption with stable profits"which would reinforce the soft landing to the greatest extent and continue to suppress the Federal Reserve's hawkish rate hike narrative. July retail sales fell 0.6% month-over-month, marking the largest drop in 14 months, while control group sales, which are more closely related to GDP, decreased by 0.4%; however, there were technical factors such as the earlier Prime Day in June and past excessive tax refunds that overstretched consumption. Meanwhile, actual U.S. GDP still grew at an annualized 1.5% in the second quarter, and personal consumption expenditures increased by 3.2%. The most ideal scenario for the Federal Reserve and risk assets is exactly the "soft but not sluggish" economic growth trajectory, where consumption is weak enough to suppress demand-driven inflation, but not so weak as to trigger a broad deterioration in corporate profits, employment, and credit cycles. A clearer shift is evident in interest rate expectations: retail, employment, and CPI/PPI are forming an increasingly uncooperative evidence chain against hawkish rate hikes. In July, the CPI rose only 0.1% month-over-month, while core CPI increased by 0.2%, with year-over-year core inflation dropping to 2.5%; subsequently, PPI rose by 0.0%, well below the market expectation of +0.2%, and year-over-year fell from 5.5% to 4.7%; coupled with an unexpected decline in non-farm payrolls by 23,000 in July, the justification for the Federal Reserve to "tighten immediately" has significantly weakened. As of August 17, the CME's pricing for a rate hike in September has fallen to about 33%, down from 51.2% a month ago; a majority of economists surveyed by Reuters from August 12 to 17 expect the policy rate to remain unchanged between 3.50% and 3.75% through the remainder of 2026. This aligns closely with Hatzius's view that "a dramatic reversal in August data is unlikely, making a September rate hike highly improbable." In other words, the earlier hawkish projections from the Federal Reserve FOMC with three dissenting votes still pose a policy tail risk, but the market is shifting its focus from when the next rate increase will happen to how long the Federal Reserve can hold off without acting. For global stock markets, this represents the most favorable macro combination for AI and growth stocks, simultaneously the most precarious boundary to navigate: cooling growth reduces the right tail risk of policy rates and discount rates, while AI capital expenditure and corporate earnings have yet to collapse in tandem. Thus, weak retail sales in themselves do not amplify the massive cloud computing demand related to GPUs, HBMs, or AI inference; rather, their effect on the AI bull market primarily reduces the risk of rising risk-free rates and financing costs, increasing the present value of future cash flows for long-duration tech assets. This also explains why the stock market could interpret the "weak data" as favorable after the recent moderated CPI/PPI. However, the boundaries of stock market investment are also becoming increasingly clear: if U.S. consumer spending falls further into negative growth from the moderate 1% to 1.5% rate, while employment continues to shrink, the logic of "rate cuts/non-rate hikes benefiting valuations" will ultimately be replaced by "earnings recession"; conversely, as long as employment does not falter and corporate capital expenditure and AI earnings remain robust, the most favorable script for risk assets will bemoderate cooling of consumption, continued decline in inflation, and the Federal Reserve remaining inactive, while the earnings cycle keeps expanding. If the latest earnings and outlook from retail giants like Walmart Inc. demonstrate that the household sector is only slowing down and not stalling, the market will receive the combination most favored by risk assets: no longer contributing to inflationary pressure + corporate profits holding steady + the Federal Reserve not needing to raise risk-free rates further, which is particularly friendly to long-duration tech stocks and AI computing infrastructure assets.