It’s that time of year. Holidays parties are over. Resolutions are being made (or broken). NFL playoff matchups are set.

And yes, fourth-quarter earnings season is underway.

Over the next week, all eyes will be on a slew of financial companies, with reports expected from J.P. Morgan, Morgan Stanley and Goldman Sachs. But traders will undoubtedly be peeking ahead to the heart of earnings season when bellwethers like Alcoa, Alphabet and Caterpillar drop clues about the health of the U.S. economy.

A key group to watch? Retailers.

Retail stocks are off to a rough start in 2024. The SPDR S&P Retail ETF (XRT) closed lower for the sixth straight day on Friday. It is already down 4% year-to-date. 

The decline could reflect profit taking on an industry that was red hot over the last two months of 2023, backed by strong holiday spending data. From November 1 to December 31st, American shoppers spent a record $222 billion at online merchants alone.

Retail’s New Year’s hangover could also point to a ‘valuation recalibration.’ After XRT closed out the year on a 24%, two-month run, the market appears to be thinking that retail stocks went too far too fast — especially with much economic uncertainty ahead.

Despite showing a propensity to spend big over the holidays, consumers could face big pressure in the months ahead. Inflation has improved but is still evident everywhere. Credit card rates are sky high. Student loan payments have resumed. And with budgets already stretched by holiday shopping sprees, there may not be much more money heading retailers' way.

This has some Wall Street research firms calling for a retail downturn. Bernstein sees a “middle-income squeeze and trade-down” in the first half of 2024. Without the near-term interest rate cuts that many have presumed (and that have propelled the S&P 500 to within 2.5% of an all-time high), Bernstein may be right.

This sets the stage for a pivotal juncture for retailers. When companies report fourth quarter results, will the market put more weight on record sales and profits…or on potentially cautious 2024 management commentary and guidance?

These three stocks will be good indicators. 

When does Amazon report earnings? 

Amazon.com (NASDAQ: AMZN) is scheduled to announce fourth-quarter results after the close on February 5th. Last time out, the Zon offered a cautious yet positive outlook for the holiday quarter and its stock gapped up 7%. Management forecast Q4 revenue of $160 billion to $167 billion, which at the midpoint equates to about 10% year-over-year growth. Considering a recent Adobe Analytics report that showed U.S. online spending rose 4.9% during the holidays, the forecast may prove too conservative.

That’s because Amazon also has a strong cloud infrastructure-as-a-service (IaaS) business in Amazon Web Services (AWS). Revenue AWS, the company’s main profit driver, grew 12% in each of the last two quarters. Given the global rush to secure artificial intelligence (AI) capabilities, growth at AWS may have accelerated during Q4. AWS booked several new business wins in the period — including Chinese electric vehicle (EV) leader BYD — and could steal the spotlight from e-commerce next month.

What are the projected Q4 EPS for ANF?

Abercrombie & Fitch Co. (NYSE: ANF) is expected to post fourth-quarter earnings per share (EPS) of $2.44 when it reports in early March. This is triple what the company reported for the holiday quarter of 2022. It’ll be interesting to see if upward analyst EPS revisions in recent weeks will prove too optimistic. If history repeats, the surging apparel retailer will blow past the bogey as it did in each of the last three reports.

However, at around $90.00 per share and 24x trailing earnings, ANF may be priced for perfection.The stock blasted 285% higher in 2023 and is trading near an all-time high. Expanding into new clothing categories and demographics was a winning formula last year, but can it be fashionable again in 2024?

Will Wayfair go way up (or down) after earnings?

Wayfair Inc. (NYSE: W) crushed Wall Street EPS estimates for the first three quarters of 2023. The online home goods retailer tends to be a big mover come earnings time — and next month’s release probably won’t be different. 

Heavy promotional activity and deep discounts were the theme of Wayfair’s holiday shopping campaign, and this likely resulted in strong sales. The extent to which the deals weighed on profitability though, may be the market’s biggest concern. Analysts are predicting that Wayfair will be profitable in 2024, so signals that support or refute this will probably dictate where the stock goes. 

Despite its improving financials, Wayfair remains one of the most hated U.S. stocks. Approximately 25% of the float is short. Analyst price targets over the last three months vary widely ($45.00 to $100.00). The last few reports have produced big one-day gains that shorts have pounced on. This has made Wayfair one of the most exciting — and riskiest — retail stocks to play come earnings season.