Shopping is like a chore to me, but my wife Carole treats it like an Olympic sport. She’s always willing to fight for Team USA. With retail sales making up around 70% of U.S. gross domestic product (GDP), she’s not just indulging…she’s doing her patriotic duty.

And it seems she’s not alone. July’s robust retail sales numbers are proving that the American consumer is hanging tough, keeping recession fears at bay for now.

U.S. retail sales increased more than expected in July, belying worries about a sharp economic downturn that were fueled by a recent spike in the unemployment rate.

Retail sales increased 1.0% last month after a downwardly revised 0.2% drop in June, the Commerce Department’s Census Bureau reported on Thursday.

Bolstering the gain in sales was bargain hunting and a growing preference for cheaper substitutes. “Core” retail sales (excluding automobiles, gasoline, building materials and food services) rose 0.3% last month after advancing by an unrevised 0.9% in June (see chart).

Core retail sales correspond most closely with the consumer spending component of GDP data. The robust retail data indicate that the economy is standing firm, despite the uptick in joblessness that caused market swoons last week.

These retail sales figures support the narrative of an economic soft landing. Consumers continue to spend, the hot job market is cooling, and inflation is easing, creating a confluence of favorable factors that should keep the stock market rally on track.

Consumer spending is the engine that drives the U.S. economy. Despite the various headwinds — rising interest rates, elevated inflation, and geopolitical tensions — American consumers have continued to spend, albeit more cautiously.

July’s robust retail sales figures showed that consumers are still willing to loosen their purse strings, even if they are being more selective about their purchases. This resilience in spending is critical because it helps sustain corporate revenues, underpinning profitability across various sectors.

For the Federal Reserve, a deceleration in job growth without a large spike in unemployment provides more room to maneuver. The central bank can afford to be less aggressive with interest rate hikes, reducing the risk of tipping the economy into a recession. For the stock market, this translates to a more stable interest rate environment, which is generally favorable for equity valuations.

The Fed has been walking a tightrope, trying to tame inflation without stifling economic growth. If the economy continues to demonstrate resilience through strong consumer spending and modest job growth, while inflation cools, the Fed is almost certain to cut rates at its next policy-making Federal Open Market Committee (FOMC) meeting September 17-18.

For the stock market, this would be a dream scenario. A pause in rate hikes would alleviate some of the pressure on equities, particularly growth stocks, which are sensitive to interest rate expectations.

How to trade during a “soft landing”…

During an economic soft landing, stock market leadership often rotates. The sectors that tend to be most promising in such a scenario include:

Consumer Discretionary. As economic fears ease, consumer spending can pick up, particularly in discretionary areas like retail, travel, and luxury goods. Companies in this sector benefit from increased consumer confidence and spending power.

Technology. The tech sector often thrives during a soft landing because it combines growth potential with the ability to adapt to changing economic conditions. Investors gravitate towards companies with strong balance sheets and innovative products, particularly in areas like artificial intelligence (AI).

Industrials. With economic stability, industrials can see renewed interest, particularly in sectors like manufacturing, transportation, and construction. As business confidence grows, so does investment in capital goods and infrastructure, which benefits industrial companies.

Financials. A soft landing can lead to a more favorable environment for banks and financial services companies, especially if interest rates stabilize. Credit growth, better loan performance, and increased mergers and acquisitions activity can drive profitability in this sector.

Health Care. This sector is often considered a defensive play with growth potential. Health care companies, including pharmaceuticals, biotechnology, and medical devices, can perform well because they are less sensitive to economic cycles and benefit from long-term demographic trends.

Real Estate. If interest rates stabilize and economic conditions remain favorable, real estate investment trusts (REITs) and other property-related investments can benefit from increased demand for commercial and residential properties, especially in sectors like industrial and data centers.

On Thursday, the comeback rally continued apace. The main U.S. stock market indices closed sharply higher as follows:

• DJIA: +1.39%
• S&P 500: +1.61%
• NASDAQ: +2.34%
• Russell 2000: +2.45%

The S&P 500 and tech-heavy NASDAQ posted a six-day winning streak. The CBOE Volatility Index (VIX), aka the “fear gauge,” dropped about 6% to hover at 15.21. Readings of the VIX below 20 indicate diminished stress in the markets.

The economy, corporate earnings, and stock market are strong. Don’t let the gloomsters convince you otherwise.

WATCH THIS VIDEO: Inside “The Income Zone” With Robert Rapier

Editor’s Note: If you’re looking for ways to generate high income in up or down markets, consider the advice of my colleague Robert Rapier.

Robert Rapier is the chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

Robert is one of the world’s foremost experts on energy and income investing, but his deep knowledge also extends into other profitable segments, notably AI. Want to learn about Robert’s next trades? Click here.

John Persinos is the editorial director of Investing Daily.

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