Back Shoot Around

22V Afternoon Shoot Around: Retail Names and Fed Stress Test

Published on June 26, 2026

Dennis DeBusschere

Bottom Line: Retail Stocks

We remain long Retail stocks. Retail stocks remain cheap on a relative basis (NTM PE spread at the 25th%tile relative to the S&P 1500) and have increasing EPS growth expectations relative to the S&P 1500. We first introduced the asymmetry in the non-AI related Cyclicals in early May. Lower oil and 10yr yields being the positive catalyst.

Relevant News: Core PCE

May core PCE came in right inline with consensus at 0.32% but softer than some expectations and worries. Core services ex housing was still very hot at 0.50%; even excluding volatile non-market prices it was 0.41%. Regardless of the exact definition used, CSEH has reaccelerated since last fall after spending roughly 2 years stalled +1p.p. above its pre-covid pace. Income and spending growth rebounded after April. Nominal spending’s acceleration and real growth’s recent steadying point to underlying household strength, although tariffs and the war have been a clear drag on real spending since last fall (inflation ramped faster than nominal spending overall).

Things to Watch [Consensus, Results]:

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Strategy:

Consumption Data Indicate Households Feel Financially Secure– (HERE)

The household and corporate sector response to an expected productivity boom is playing out. The basic “inside the box” macro thinking has served us well. The obvious risks to consumer spending are higher inflation leading to an aggressive fed hike cycle, or a significant disappointment in AI productivity. I.e. household and corporate spending slows (savings rates increase in the private sector) because it turns out AI tools are great to play with, but or not creating as much value as perceived. High frequency consumer spending has been strong.

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Financials:

Low Stress– (HERE)

The Fed’s 2026 stress test was a largely uneventful outcome for banks, as expected, with the Fed keeping the Stress Capital Buffer (SCB) at 2.5% while it reviews potential changes to the framework. The banking system remained well-capitalized, posting its smallest stressed CET1 decline in seven years despite a tougher scenario for commercial real estate, credit spreads, and equities. Most banks were already at the minimum SCB, limiting surprises, while banks returning to the test saw the largest capital improvements. Following the results, Wells Fargo and U.S. Bancorp announced modest dividend increases, with future focus shifting to potential changes in the Fed’s stress testing models and capital rules.

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