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As the US economic data picks up andWalmartDue to strong earnings, U.S. stocks rebounded sharply and recovered all the losses in early August. However, it remains to be seen whether the optimistic expectations for the U.S. economy are tenable.

Wall Street will be watching earnings reports from U.S. retail giants Target Corp, Macy's Inc and TJX Cos next week for more evidence of the resilience of the U.S. economy.

Walmart's strong earnings as consumers turn to lower prices

While Walmart's results look strong, with net sales expected to grow by as much as 4.75% this year, a deeper analysis reveals some signs of not-so-healthy spending.

The analysis noted that Walmart shoppers are buying necessities rather than high-priced products and that the company is growing by taking market share from competitors.

John Zolidis, founder of consumer advisory firm Quo Vadis Capital, said:

That's not really a positive, clear signal across the board, if you think about the bulk of the data that we're seeing, the commentary from all the companies saying that we're still in a state of weak consumption, which is what you're going to see from other retailers.

Michael Landsberg, chief investment officer at Landsberg Bennett, believes that Walmart always claims that they have low prices and they have lowered prices on many things, which shows that the American business community sees that consumption is slowing down.

Consumer spending is the biggest driver of U.S. economic growth, accounting for two-thirds of it, so retail gains are particularly important.While many companies in the sector are yet to report results, other consumer-facing firms offer a gloomy picture of rising costs that have stretched budgets and pandemic savings that have eroded.

McDonald’s Corp. and Papa John’s reported flat quarterly sales as Americans ate less outside of their homes. Meanwhile, packaged food makers Hershey Co. and Kraft Heinz Co. cut their revenue forecasts for the year. Updates from Airbnb Inc. and Expedia Group Inc. signaled that consumers are becoming more selective when booking vacations.

More retail stocks to confirm healthy consumer spending

Looking ahead, investors will be watching earnings from Target, Macy's and TJX on Wednesday, as well as Best Buy Co. and Dollar General Corp. later this month.

DA Davidson analyst Michael Baker had already cut second-quarter and second-half earnings forecasts for several companies, including Target and Ulta Beauty Inc., before the results were released. He believes retailers are more likely to lower than raise guidance in the second half of the year.Walmart is a big winner, in Baker's view. Its focus on discounts, coupled with better execution, especially in e-commerce, is helping the company gain market share and attract higher-income shoppers.

Cooling inflation is another key factor affecting spending, with the latest data from the U.S. Bureau of Labor Statistics showing that underlying U.S. inflation cooled year-on-year for the fourth consecutive month in July. Cayla Seder, macro multi-asset strategist at State Street, said:

Recent data show the consumer remains strong but is slowing, consistent with the Federal Reserve preparing to begin slowly cutting interest rates.

Next week's Jackson Hole symposium will see the central bank hold its annual meeting, and Federal Reserve Chairman Jerome Powell is expected to speak, having said a September rate cut was "on the table" to help consumers manage their bills.