Bank of America Research, however, offers a word of optimism in the Friday edition of its U.S. Economic Weekly note. “Remember,” the team led by head of North America economics Ethan Harris wrote, “the equity market is not the economy.”

The report cites recent stock market trends that might be spooking investors, including negative earnings reports from retail giants Walmart, Amazon, and Target. Disappointing earnings from retail stocks have played a significant role in the S&P 500’s 20% fall this year, it noted, with the S&P Retail Select Industry Index falling 39% since a November peak, with an especially dramatic plummet in May.

“What is behind the selloff and what does it mean for the consumer outlook?” the report asks. The answer? Companies might just be catching up to consumer demand fluctuations as the economy continues to rebalance after the pandemic’s initial lockdown and gradual easing of restrictions. 

“With spending on goods shifting from boom to mild correction, some companies may have been caught off guard,” the report states. That’s especially true for the online retail sector, where market share stopped growing abruptly after enjoying strong growth in 2020 and 2021.

“The share of spending online has grown every year since the sector got going in 2000,” says the report. That sector enjoyed a jolt at the start of the pandemic, but now faces flat spending for the first time.

“Digging deeper, we don’t see cause for alarm here,” continues the report. The negative earnings reports in the retail sector aren’t indicative of imminent economic disaster, the team said, but rather confirm wider macroeconomic trends in the U.S. Those trends started to take root last spring, when businesses began to reopen and consumers started to slowly spend more on services as opposed to goods.  

“It is not surprising to us that there may have been some overshooting in terms of both stock valuations and corporate planning,” says the report about businesses’ attempts to grapple with the end of the pandemic. The bank further suggests that sales and hiring plans may have been too aggressive as the economy reopened, leading to the current moment of major readjustment.

The report also takes aim at the state of inflation, suggesting that the Fed is likely positioned to take greater action by raising interest rates in the near future. Next week, five members of the Federal Reserve’s Federal Open Market Committee (FOMC), which makes inflation rate decisions, are set to speak, according to the report: “They could shed some light on the policy outlook after the next two meetings.”