J.P. Morgan Identifies Home Depot, Best Buy, and Wayfair as Top Retail Picks Amidst Volatile Consumer Environment

J.P. Morgan analyst Christopher Horvers identifies Home Depot, Best Buy, and Wayfair as top picks for retail sector due to favorable consumer environment including rate cuts, tariffs, employment growth, and tax stimulus. These companies are expected to outperform in a volatile investment environment despite challenges.

J.P. Morgan analyst Christopher Horvers has highlighted Home Depot, Best Buy, and Wayfair as top picks for the retail sector in 2026, citing a favorable consumer environment driven by rate cuts, tariffs, employment growth, and tax stimulus. These companies are expected to outperform despite potential challenges.

The analyst points to four positive factors—wage growth, replacement cycles, stronger home sales, and tax stimulus—that are set to converge in the first half of 2026, creating a favorable setup for select U.S. retailers. Home Depot was added to the Analyst Focus list as a Growth idea, while Best Buy remains on the Focus list as a Value pick. Wayfair, which has been on the Positive Catalyst Watch, is expected to benefit from upward revisions over the coming quarters.

Wage growth above 4% is seen as the most important driver of retail sales, with historical correlations exceeding 80%. The analysts also cited net sales benefits from tariff-related inflation, a recent Fed rate cut that supports future demand, and powerful tax stimulus from the "One Big Beautiful Bill." The tax reform is estimated to provide a roughly 3 percentage point boost to monthly core retail sales growth during the peak refund season between February and May 2026, lifting full-year core retail sales by about 1%.

Costco and Target screened well in the analysis, while companies with greater lower-income exposure, such as Walmart and BJ’s, may face headwinds from a softening labor market and reduced SNAP benefits. The current housing cycle is expected to relatively favor Home Depot (HD) over lower- and mid-tier retailers. Wayfair is seen as offering the most torque among home-related names, followed by Williams-Sonoma and RH.

The analysts cautioned that a seasonal "shopping valley" between back-to-school and the holidays could weigh on near-term results, but they expect investors to look through to tax benefits arriving in early 2026. Back-to-school spending was solid, with category growth of more than 6% in July-August and 4.4% in September to date.

The analysts' favorite names based on their analysis and today’s prices include BBY, HD, and W. Additionally, they cited compelling upside in AutoZone, Ulta Beauty, and Walmart for retailers less tied to housing dynamics.