Stock Market Comment: US retailers benefit from e-commerce surge

• US retailers benefit from strong US spending

• Post-pandemic recovery quicker than expected

• E-commerce drives revenue gains in May-July period

• Political deadlock could weigh on future results

• Ross Stores (ROST.US) to publish results today after session close

Coronavirus pandemic has triggered an abrupt downturn in the global economy. Massive job losses, with some of them expected to be permanent, encouraged a range of grim forecasts pointing to weak consumer spending in the pandemic world. However, consumers recovered much quicker than expected with US retail sales hitting a record in July 2020.

Walmart (WMT.US) surged to a fresh all-time high earlier this week, following release of a solid quarterly report. However, bulls failed to hold onto recent gains amid yesterday's pullback. Share price dropped to the support zone at $133.00 and closing below this hurdle today could create a bearish bias. Source: xStation5

A number of major US retailers published quarterly earnings reports this week, including Walmart, Target or Home Depot. Reports confirmed what has been signalled by the US retail sales data in recent months - consumer spending recovered quickly from the coronavirus pandemic. A point to note while speaking about earnings reports of US retailers is that they do not match calendar quarters. Reports released this week were for the May-July period, so they captured 3 months of post-pandemic recovery in spending. Most of the retailers showed stellar results contrasting with earnings declines for the broad market and, unsurprisingly, e-commerce outperformed. 

Target (TGT.US) also rallied to a fresh all-time high on the back of solid results. The stock has closed in on the resistance marked by 161.8% exterior retracement of coronavirus plunge ($155). Target shares defied yesterday's broad market decline and finished the session higher. Source: xStation5

Coronavirus pandemic can be barely noticed in the US consumer spending data in recent months, thanks to stimulus checks and unemployment benefits. All major US retailers managed to increase revenue in the May-July perdio with Lowe's increasing sales by 30% YoY while Target and Home Depot saw over 20% increases as well. Walmart managed to increase revenue by 5.6%, to $137.7 billion! Improved results were driven to huge extent by solid e-commerce performance - Target managed to increase online sales by 195% while Walmart saw a 97% jump in e-commerce revenue. 

Growth dynamics are looking even better when it comes to operating profit with Target booking almost 74% YoY increase and Lowe's seeing 66% YoY gain. Strong results keep shares of US retailers afloat as they show that neither business, nor dividends seem to be in danger. In fact, most of the US retailers even announced dividend increases along with earnings release. However, there is a looming threat for the US consumer spending on the horizon - politics. Democrats and Republicans still haven't found a consensus on the next stimulus bill. This is important as part of unemployment benefits expired at the end of July and without government's support US consumers may begin to struggle. Keep in mind that US employment still sits significantly below pre-pandemic levels and some of the jobs lost may never return.

Ross Stores (ROST.US), the US off-price retailer, is set to report quarterly earnings today after the session closes. Shares pulled back yesterday after another off-price retailer, TJX (TJX.US), showed an unexpected quarterly loss. Analysts expect Ross Stores to show a loss today and almost 40% drop in revenue. Source: xStation5