The week ahead is set to be a crucial one for the US retail sector as a slew of earnings reports are scheduled for release. With Americans remaining cautious with their spending, analysts predict a divergence among companies within the sector.

According to eToro US investment analyst Callie Cox, consumers are being selective with their purchasing decisions, which could keep the economy afloat but also lead to varying outcomes among retailers. This trend has become evident with Target, as the company's shares have fallen by nearly 35% due to its higher reliance on discretionary spending. Goldman Sachs estimated that 60% of Target's sales came from these discretionary goods.

Investors will be closely watching earnings reports from major retailers this week. Home Depot is set to release its earnings on Tuesday, followed by Target on Wednesday, and Walmart on Thursday. Macy's, TJX Companies, and BJ's Wholesale will also be reporting their results.

Morgan Stanley equity analyst Simeon Gutman believes Walmart is well positioned for a "beat and raise" scenario, suggesting potential positive outcomes for the company. However, Gutman does not foresee an immediate turnaround for Target.

For retailers whose results are tied to the housing market, such as Lowe's and Home Depot, Morgan Stanley is adopting a cautious outlook, predicting potential sales softness for Lowe's in the third quarter. Home Depot, on the other hand, is expected to lead this segment of the retail sector.

In the "softlines" sector, which includes discretionary names like TJX, Macy's, Lululemon, and Nike, Evercore ISI retail analyst Michael Binetti noted that macro and industry signals are mixed. However, with improvements in inventories and a shift in consumer spending away from pandemic-related services, Evercore sees some opportunity in the sector. Their top five picks are TJX, PVH, Lululemon, Ulta, and Gap.

The upcoming earnings reports are expected to provide insights into the health of the US economy. Some analysts on Wall Street anticipate a potential slowdown driven by factors such as student loan repayments, declining excess savings, and higher borrowing costs. The direction of the consumer sector will likely have implications for the broader market, according to Evercore ISI senior managing director Julian Emanuel.

As investors eagerly await this week's earnings announcements, the performance of retailers will serve as a barometer for consumer sentiment and the overall state of the US economy.