U.S. consumers understandably have been getting a raw deal of late, but there are signs they want to spend more this summer and fall.
Consumer spending stalled a bit in April, remaining unchanged sequentially. The Street was looking for a 0.2% increase. But there were key areas of the report that went overlooked: (1) Spending in March was revised higher; (2) incomes rose; (3) savings rose, which should support future spending. I think some of those results beneath the surface suggest the consumer is in a much better place than he/she is being portrayed. If that's the case, the U.S. economy could likely handle the Fed's first rate increase.
Here are a couple of areas where the market is sniffing out a consumer spending binge. Note that back-to-school shopping begins in mid-July -- the market could be telegraphing a good round of consumer data from the month when it's delivered in August.
Starbucks vs. Dunkin' Brands vs. S&P 500
Starbucks (SBUX) hit a fresh 52-week high on Friday. Dunkin' Brands (DNKN) is closing in on its 52-week high, achieved on April 24. The fact both of these stocks continue to power higher in the face of their considerable international exposures (where, as we know, not everything is peachy keen), I believe, is a nice tell on the true state of the U.S. consumer. When each reports earnings next month, the U.S. businesses should be standouts. For Starbucks, it's probably continuing to see strong sales of drinks and food in the U.S. As for Dunkin', its U.S. sales growth likely has continued to strengthen from the fourth quarter of last year. (Starbucks is part of TheStreet's Action Alerts PLUS portfolio.)
Domino's Pizza vs. Papa John's vs. S&P 500
Don't think the U.S. consumer's awakening is reserved for upper-middle-income households hooked on iced coffee. To see shares of fast-food pizza makers continue to surge, in spite of ruthless price competition (Little Caesars selling $5 large pizzas, for example), is a positive indicator on the health of middle- to low-income families. I think minimum-wage increases have helped a smidgen to spur some discretionary spending -- perhaps an extra meal out for the family in any given week.
Domino's (DPZ) remains my pick here, leading on technology. But don't forget Pizza Hut -- I think the brand is being undervalued inside of Yum! Brands (YUM), and have liked the chain's recent marketing and menu initiatives.
Foot Locker vs. Finish Line vs. S&P 500
Both footwear retailers are predominantly domestic-based. And if you are to search the Internet, you will find sneaker demand remains very, very strong. More so in the new basketball styles than in running, which is a good sign on the U.S. consumer as those are the priciest sneakers in the market. Finish Line (FINL) reports earnings Friday -- the company showed a better quarter last go-round, but I think the play continues to be Foot Locker (FL). I like how the company is reinventing its stores. I would be looking to trade Under Armour (UA) long into the weekend. If Nike (NKE) reports a so-so quarter, Under Armour will be credited. Whatever Finish Line reports, Under Armour is likely to be called out as a top-selling brand. (Under Armour is part of TheStreet's Growth Seeker portfolio.)