The retail sector has struggled over the past year but has still tried to hold its ground amid inflationary pressures. This has seen retail sales growing at a slower pace. However, the picture looks rosy now, with inflation declining steadily and sales making a rebound.

The Commerce Department said on Dec 14 that retail sales totaled $705.7 billion, increasing an impressive 0.3% in November after unexpectedly declining 0.1% in October. This was also higher than economists’ expectations of a decline of 0.1%.

Leaving out autos, retail sales rose 0.2% in November. Excluding autos and gas, retail sales jumped 0.6%. Consumers have been spending aggressively, with the holiday season starting on a solid note.

Also, inflation has been steadily declining over the past year, thanks to the Federal Reserve’s aggressive monetary tightening campaign. The consumer price index (CPI) rose a meager 0.1% in November on a month-over-month basis, while on an annual basis, it increased 3.1%, slower than October’s jump of 3.2%.

Year over year, retail sales grew 4.1%, while sales were up 3.4% from September through November compared to the year-ago period, with e-commerce playing a major role once again.

Sales at bars and restaurants jumped 1.6%, while at sporting goods outlets rose 1.3%. Online retail sales grew 1% in November on a month-over-month basis.

The retail sector is trying to make a solid rebound and 2024 looks promising as the Federal Reserve has finally indicated ending its monetary tightening campaign after it left its benchmark policy rate unchanged in the current range of 5.25-5.50% after hiking interest rates by 525 basis points since March 2022.

Also, the Fed said that it doesn’t plan to keep interest rates higher for a longer time, which has raised optimism among investors that the first-rate cut could come in March. Also, the Fed plans at least three rate cuts next year, which bodes well for the retail sector.

Our Choices

Given the encouraging economic environment and increase in retail sales, it would be prudent for savvy investors to consider betting on retail stocks like American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) , Amazon.com, Inc. (AMZN Quick QuoteAMZN - Free Report) , The Gap, Inc. (GPS Quick QuoteGPS - Free Report) , Casey's General Stores, Inc. (CASY Quick QuoteCASY - Free Report) and Expedia Group, Inc. (EXPE Quick QuoteEXPE - Free Report) that stand to benefit directly from these favorable conditions.Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, Inc. is a specialty retailer of casual apparel, accessories and footwear for men and women aged 15-25 years. AEO, along with its subsidiaries, engages in the designing and marketing of casual clothing. American Eagle Outfitters’ assortment includes jeans, cargo pants, graphic T-shirts as well as a range of accessories, outerwear and footwear.

American Eagle Outfitters’ expected earnings growth rate for the current year is 39.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 60 days. AEO presently has a Zacks Rank #2.

Amazon.com, Inc. is one of the largest e-commerce providers, with sprawling operations in North America and across the globe. AMZN’s online retail business revolves around the Prime program, which is well supported by the company’s massive distribution network. Further, the Whole Foods Market acquisition helped Amazon establish its footprint in the physical grocery supermarket space.

Amazon.com’sexpected earnings growth rate for the current year is 276.1%. The Zacks Consensus Estimate for current-year earnings has improved 20.3% over the past 60 days. AMZN presently sports a Zacks Rank #1.

The Gap, Inc. is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. GPS offers products for men, women and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix and Hill City brands.

The Gap’sexpected earnings growth rate for the current year is 388%. The Zacks Consensus Estimate for current-year earnings has improved 64.3% over the past 60 days. GPS currently sports a Zacks Rank #1.

Casey's General Stores, Inc. operates convenience stores under the Casey's and Casey's General Store names in 16 Midwestern states, mainly Iowa, Missouri and Illinois. CASY also operates two stores under the name "Tobacco City," selling primarily tobacco and nicotine products, one liquor store and one grocery store.

Casey's General Stores’ expected earnings growth rate for next year is 6.2%. The Zacks Consensus Estimate for current-year earnings has improved 7.5% over the past 60 days. CASY presently sports a Zacks Rank #1.

Expedia Group, Inc. is an online travel company that empowers business and leisure travelers through technology with the tools & information they need to efficiently research, plan, book and experience travel. EXPE has travel brands including majority-owned subsidiaries that feature the world's broadest supply portfolio with more than a million online bookable vacation rental listings in many countries, over many airlines, packages, rental cars, cruises, destination services and activities.

Expedia’s expected earnings growth rate for next year is 41.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days. EXPE presently has a Zacks Rank #2.