JPMorgan highlights top retail plays into early 2026 as tailwinds harmonize

JPMorgan anticipates a favorable environment for select U.S. retailers in H1 2026, driven by the convergence of wage growth, replacement cycles, stronger home sales, and a significant tax stimulus. The firm added Home Depot to its Growth list, reiterated Best Buy as a Value pick, and placed Wayfair on Positive Catalyst Watch, expecting these factors to fuel upward revisions and multiple expansion. A powerful tax stimulus is projected to boost core retail sales by approximately 3% monthly during peak refund season, primarily benefiting mid-to-high income households, though retailers with greater lower-income exposure like Walmart and BJ's may face headwinds. JPMorgan's favored names based on this analysis include Best Buy, Home Depot, and Wayfair, with Costco and Target also screening well.

Analysis

JPMorgan projects a confluence of four positive factors in the first half of 2026, creating a favorable outlook for select U.S. retailers, particularly those oriented towards home goods and mid-to-high-income consumers. The primary drivers identified are persistent wage growth above 4%, which has an over 80% historical correlation with retail sales; activating replacement cycles for goods purchased during the pandemic; a strengthening housing market supported by a recent Fed rate cut; and a significant tax stimulus. This tax reform is forecast to boost monthly core retail sales by approximately 3 percentage points during the peak refund season (February-May 2026) and lift full-year sales by 1%. The benefits of this stimulus are skewed towards higher-income households, positioning retailers like Costco and Target favorably. Conversely, chains with greater exposure to lower-income consumers, such as Walmart and BJ's, may face headwinds from SALT and SNAP changes. Based on this outlook, JPMorgan has added Home Depot to its Analyst Focus list as a Growth idea, reiterated Best Buy as a Value pick, and placed Wayfair on a Positive Catalyst Watch, anticipating upward revisions and multiple expansion for these names. Within home improvement, Home Depot is seen as better positioned than Lowe's and Floor & Decor.

Key Decisions for Investors

• Investors should consider overweighting positions in retailers with exposure to mid-to-high-income consumers and the housing cycle, such as Home Depot (HD), Best Buy (BBY), and Wayfair (W), which JPMorgan has specifically highlighted for potential upside.
• It may be prudent to evaluate holdings in retailers with high exposure to lower-income consumers, like Walmart (WMT) and BJ's (BJ), as they face potential headwinds from fiscal policy changes and a softening labor market for that demographic.
• Consider looking past potential near-term sales weakness in the pre-holiday 'shopping valley,' as the analysis suggests significant economic and fiscal tailwinds are expected to materialize in early 2026, which could drive future performance.
• For sector-specific allocations, the analysis implies a relative value opportunity in favoring Home Depot over competitors like Lowe's (LOW) and Floor & Decor (FND) based on the current housing cycle dynamics.