Tax refunds are set to boost the US economy and specific retail stocks this season, according to Bank of America analysts. The bank estimates that Americans will receive approximately $140 billion in total economic stimulus from bigger refunds and smaller tax bills, creating a significant tailwind for retail stocks in particular sectors.
Bank of America’s analysis suggests that tax refunds will benefit from several policy changes, including adjustments to the state and local tax cap, potential elimination of taxes on overtime and tips, and an increased standard deduction for seniors. The bank’s US Economics team projects these policies will boost returns by 26%, adding an average of $1,000 per family.
Value Retailers Positioned to Benefit from Tax Refunds
According to Robert Ohmes, a Bank of America analyst, value retail stocks represent one of two key categories poised to gain during this tax season. Lower and middle-income tax filers are expected to direct their refund cash toward consumer staples and debt reduction, creating opportunities for discount retailers.
The analyst noted that tax refunds in the lowest brackets, particularly those under $3,000, tend to support growth in discretionary purchases including general merchandise. Additionally, these refunds typically drive increased spending on groceries and gas, sectors where value retailers maintain strong positions. Dollar General was specifically mentioned as a potential beneficiary in this category.
Broadline Retail Stocks Attract Higher-Income Shoppers
Meanwhile, broadline retail stocks form the second category that Ohmes expects to outperform during tax season. This segment, which appeals primarily to higher-income households, includes major players like Walmart and Costco that are expanding their same-day delivery services and e-commerce capabilities.
Ohmes explained that these retailers could see greater benefits from tax refunds in 2025 compared to last year. The advantage stems partly from their higher exposure to middle and upper-income filers who stand to benefit most from increased standard deductions for seniors and the higher SALT cap, according to the analyst.
However, the benefits extend beyond demographic targeting. The analyst also expects broadline retailers to capture increased spending on consumer electronics, potentially boosting other retail names like Best Buy. This spending pattern reflects higher-income households’ tendency to allocate larger refunds toward bigger-ticket discretionary items.
Market Response Signals Investor Confidence
In contrast to struggling technology stocks, many retailers already demonstrated solid gains in recent trading sessions. Walmart shares jumped 3% to reach a $1 trillion valuation, indicating investor confidence in the retail sector’s prospects amid the approaching tax refund season.
The retail rotation reflects broader market dynamics as investors seek sectors positioned to benefit from increased consumer spending. Tax refunds historically provide a predictable influx of cash that drives retail sales, particularly in the first half of the year when most Americans file their returns.
The impact of this year’s tax refunds on retail stocks will become clearer as the tax filing season progresses and consumer spending patterns emerge. Analysts will monitor whether the projected $140 billion economic boost translates into the anticipated gains for value and broadline retail stocks through the second quarter.
