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Walmart and Home Depot Earnings Show the K (Shaped Economy) Is Here to Stay

Submitted by Dan Schmidt. Published: 8/24/2026.

The S&P 500 may have hit a new all-time high this month, but that doesn’t necessarily mean consumers are feeling good about the economy. While consumer sentiment has rebounded from historic lows, July retail sales surprised to the downside at $763.6 billion, down 0.6% from the previous month. One data point doesn’t create a trend—and the number was still up 5% from July 2025—but it was the first month-over-month retail sales decline since October 2025. As a result, investors have been watching retail-sector earnings closely over the last week.

Walmart Inc. (NASDAQ: WMT) and Home Depot Inc. (NYSE: HD) were two bellwethers that reported this week. Both beat estimates and posted comparable-store sales growth, but the market reaction couldn’t have been more different. A deeper dive into the numbers shows that the dreaded K-shaped economy is still very much with us.

Walmart Earnings: High Traffic, Lower Tickets

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Walmart released its fiscal Q2 2027 results before the market opened on Aug. 20, and the stock was promptly smacked down 9% despite a top- and bottom-line beat. U.S. comparable sales grew 2.6% during the period, the company expanded its gross margin by 96 basis points (bps), and it raised full-year sales guidance. However, the headline numbers don’t tell the whole story.

The margin gains were boosted by $2.9 billion in tariff refunds, which the company plans to return to customers through price reductions. Management noted that 750 bps of operating-income growth was attributable to tariff refunds, and that benefit will not be repeated in Q3.

But the real question mark in the results came from comparable sales, which decelerated significantly from 4.1% and 4.6% in fiscal Q1 2027 and Q4 2026, respectively. Management attributed 125 bps of the decline to new drug regulations affecting pharmacy sales, but the real culprit appears to be a decline in transaction size rather than volume.

Sam’s Club provides the clearest example: Comparable sales grew 4.4% excluding fuel, but the average ticket declined 2.5% despite a 7% increase in transactions.

Consumers are trading down to value, which typically isn’t a sustainable way to build comparable sales. Q3 operating income was guided to a range of 2% to 4%, so the headline guidance lacks teeth and helps explain why the stock dropped 9% after the release.

The stock fell below its 50-day moving average on the day of the release, reversing the momentum that had been building, as shown by the Relative Strength Index (RSI). The RSI has now plunged to 30, typically considered the threshold for an oversold stock. This raises the question of how much downside remains.

Home Depot Earnings: Slower Traffic, Higher Tickets

Home Depot reported its fiscal Q2 2026 earnings on Aug. 18, and the market reaction was far more nuanced.

Home Depot delivered another tariff-refund-aided headline double beat alongside growing comparable sales, but its 1.7% comparable-sales growth was the company’s best result since Q3 2022. The breakdown of those sales also offers another clue about consumer sentiment.

The 1.7% comparable-sales growth came with 2.8% ticket growth and a 1% decline in transaction volume. Big-ticket items continue to dominate sales: Transactions over $1,000 grew 2.4% during the quarter, and average spending per trip rose from $90.01 to $92.50. Affordability continues to limit turnover in the housing market, but current homeowners have built up substantial equity to fund renovations.

A smaller cohort of wealthier customers is carrying Home Depot’s comparable sales, which likely explains why management chose to reaffirm Q3 2026 guidance rather than raise it after tariff refunds boosted profitability.

The stock rose slightly after the earnings release and is now locked in a tight range between its 50-day and 200-day moving averages. However, the RSI is trending below the bearish threshold, hinting that the momentum from the post-earnings pop may struggle to sustain itself.

Value Tradedowns and Big-Ticket Spending Highlight Diverging Consumer Behavior

Earlier this month, U.S. Treasury Secretary Scott Bessent said he was “sick and tired” of hearing about the K-shaped economy. But unfortunately for Bessent, these earnings results show that the K is likely to remain a talking point through the end of the year. Walmart’s comparable-sales growth is slowing despite booming traffic because consumers higher up the income ladder are now trading down for essentials and groceries. At the same time, homeowners flush with equity have plenty of capital to deploy on home-improvement projects, while renters and do-it-yourself customers are staying away.

Moving forward, investors should monitor a few sentiment-related factors. August retail sales numbers will be released on Sept. 16 and will include any revisions to the previous month. Walmart’s Q3 earnings will also be in the spotlight after its Q2 drawdown, and the market will watch whether tariff-aided price cuts increase spending per trip. For now, the K-shaped economy continues to inform sentiment and guide behavior, with lower-income households bearing the brunt of the trade-offs.