What Happened?

A number of stocks jumped in the afternoon session after fresh economic data revealed core PCE inflation held steady at 3.3% while resilient consumer spending supported modest second-quarter economic growth. Abercrombie set the tone for the sector after delivering record second-quarter net sales of $1.27 billion and raising its full-year outlook. The company's 15th consecutive quarter of top-line growth, highlighted by earnings of $4.17 per share and operating margins nearing 20% according to the company’s press release, demonstrated that strong brand execution and targeted store rollouts are still translating to high profitability.

That company-specific strength was amplified across the broader retail group—lifting peers like Urban Outfitters, Gap, American Eagle, and Dick's Sporting Goods—by supportive macroeconomic data. According to CNBC, the U.S. Bureau of Economic Analysis reported that Core PCE, which excludes volatile food and energy costs, held steady at 3.3% year-over-year in July. Concurrently, updated second-quarter GDP data confirmed the broader economy expanded at a 1.5% annualized pace. Crucially for the retail sector, the underlying consumer engine remains highly durable. While headline GDP was restrained by a surge in tech-related imports, consumer spending climbed at a robust 3.4% annual clip. Alongside a 0.4% increase in personal income and a 1.1% advance in durable goods orders, the steady inflation readings provided investors with a clear signal that the U.S. consumer continues to spend, easing fears of a retail slowdown and providing the Federal Reserve with leeway regarding its benchmark interest rate policy.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Apparel Retailer company American Eagle (NYSE: AEO) jumped 4.8%. Is now the time to buy American Eagle? Access our full analysis report here, it’s free.
• Sports & Outdoor Equipment Retailer company Dick's (NYSE: DKS) jumped 3.4%. Is now the time to buy Dick's? Access our full analysis report here, it’s free.
• Apparel Retailer company Gap (NYSE: GAP) jumped 5.6%. Is now the time to buy Gap? Access our full analysis report here, it’s free.
• Apparel Retailer company Victoria's Secret (NYSE: VSXY) jumped 5.3%. Is now the time to buy Victoria's Secret? Access our full analysis report here, it’s free.
• Apparel Retailer company Urban Outfitters (NASDAQ: URBN) jumped 4.7%. Is now the time to buy Urban Outfitters? Access our full analysis report here, it’s free.

Zooming In On Gap (GAP)

Gap’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago when the stock dropped 13.7% on the news that the company's fourth-quarter earnings report included a disappointing revenue forecast for the upcoming quarter. The company met Wall Street's expectations for the fourth quarter, with revenue growing 2.1% year on year to $4.24 billion and GAAP earnings per share of $0.45 coming in line with consensus. Same-store sales, a key metric measuring performance at stores open for at least a year, also rose by a healthy 3%.

However, the solid quarterly performance was overshadowed by the company's forward guidance. Gap projected first-quarter 2026 revenue of $3.51 billion, which was slightly below analysts' estimates of $3.53 billion. This weaker-than-expected outlook appeared to be the primary concern for investors, suggesting potential challenges ahead and triggering a significant sell-off in the stock.

Gap is down 16% since the beginning of the year, and at $21.17 per share, it is trading 27.3% below its 52-week high of $29.13 from February 2026. Investors who bought $1,000 worth of Gap’s shares 5 years ago would now be looking at only $803.26.

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