Consumers take a licking but keep on ticking

Retail sales remained resilient in April, helped by larger tax refunds and a strong stock market that supported higher-income consumers. Yet the surge in gasoline prices from the Iran conflict is now pressuring inflation, lifting Treasury yields and reducing the odds of near-term Federal Reserve easing.

Spending strength was broad enough to support another solid month for core retail sales, which should also lift first-quarter GDP revisions. Still, rising energy costs are outpacing wage growth, and that gap could weigh on consumer demand as households become more cautious.

Investor sentiment is also softening across consumers, small businesses, and homebuilders. For advisors and investors, the near-term opportunity remains selective exposure to equities tied to affluent spending power, while the main risks are sticky inflation, weaker confidence, and tighter financial conditions.