Consumer Expectations are High for 2026

Thanksgiving week normally kicks off a period of positive seasonality in stocks, in part because the U.S. consumer rarely disappoints during the holiday season. But high market expectations for recovery in 2026 may be tough for the consumer to overcome in the year ahead. Consensus and market implied expectations for growth in the consumer discretionary sector are elevated relative to norms, and in the face of very low confidence levels and slow retail sales growth.

Discretionary stocks (excluding high tech companies Amazon and Tesla) are on track to post a decline in earnings year-over-year for a fourth consecutive quarter in 4Q, implying that low holiday sales expectations may be fairly easy for consumers to hurdle. However, after 4Q, earnings growth is expected to surge back into positive territory, with 6.6% average growth in 2026. Easy comparisons to 2025 certainly help, but nonetheless this forecast is for growth to double the sector’s norm. The group averaged 3.6% growth quarterly in the five years prior to the pandemic.

Likewise, valuations for the segment are extended relative to historical norms. On a forward basis, the PE multiple for ex-AMZN and TSLA consumer discretionary is 19.6x, or 29% above pre-pandemic 5-year average.

Even as nominal sales have grown 7.8% from the beginning of 2023 to date, real sales have dropped 0.2%, evidence that the consumer is continuing to tread water. Meanwhile, confidence continues to languish near all-time lows. While policy support in the form of lower interest rates as well as tax refunds could help revive consumer trends and support stocks, deteriorating job growth, low consumer confidence and poor spending trends are all conspiring to spoil the market’s forecast in 2026.

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