While the broader market has climbed, consumer stocks have been left behind. Over the past three months, the S&P 500 gained 4.3%, but the Consumer Staples Select Sector SPDR Fund (XLP) fell about 4% and the Consumer Discretionary Select Sector SPDR Fund (XLY) dropped roughly 5%. This divergence highlights the pressure on consumer-facing companies as higher Treasury yields and rising fuel costs squeeze household budgets.
According to Paul Hickey, senior expert at Bespoke Investment Group, the 10-year Treasury yield hovering above 5.3% and diesel prices up about 68% since the Iran conflict began have weighed heavily on consumer sentiment. Meanwhile, wage growth of approximately 3% trails inflation at 3.4%, further straining purchasing power.
Despite these headwinds, Joe Feldman, lead consumer analyst at Telsey Advisory, sees a turning point for select names. He argues that Home Depot, McDonald's, and TJX have likely bottomed and are attractive for long-term investors heading into 2027.
Home Depot: Market Share Gains Amid Housing Slump
Home Depot's stock has tumbled about 18% in three months, reflecting a housing market constrained by tight supply and elevated mortgage rates that track the 10-year Treasury yield. Affordability has deteriorated, yet the company's operating performance remains resilient. Home Depot has posted seven consecutive quarters of comparable-store sales growth, and Feldman expects this streak to continue through the second half of the year. He notes that the retailer is gaining market share even with the macro backdrop under significant pressure. Trading at less than 2x sales, the stock sits at a substantial discount to its historical valuation multiples.
McDonald's: Value Perception Headwinds Create Entry Point
McDonald's shares have also slid about 18% over three months, but Feldman describes the company's latest financials as “pretty solid numbers.” Management has focused on winning back lower-income customers amid a weaker perception of value. Feldman believes these temporary value-perception headwinds offer an attractive entry point for a premier global franchisor. McDonald's unmatched scale, high-margin asset-light model, and robust balance sheet allow it to out-invest competitors in digital ordering and targeted promotions. As value initiatives take hold, resilient earnings and market-share gains should catalyze a valuation rebound. At about 6x sales, MCD shares are available at a discount, he noted.
TJX: Inventory Misstep and Seasonal Strength
TJX's 10% decline is the shallowest of the three, and the closest to a self-inflicted wound. In the latest reported quarter, the owner of Marshalls and HomeSense carried the wrong mix of inventory, which hurt parts of the business, though management says trends have since improved. The calendar offers some cover: the off-price retailer tends to thrive at the end of the year, when consumers hunt for well-priced finds. TJX shares are currently trading at about 2.5x sales, a valuation multiple that offers a meaningful discount to long-term investors. The retailer also pays a dividend yield of 1.38% as of writing, making it more attractive for income-focused investors.
While the consumer environment remains challenging, these three companies exhibit strong fundamentals and compelling valuations. Investors may find opportunities in their current beaten-down prices, but should remain mindful of ongoing macroeconomic risks.
This article is for informational purposes only and does not constitute financial advice.
