What happened

Levi Strauss (LEVI -0.04%) shareholders beat a rising market this week, as the stock gained 11% through late Thursday trading compared to a 5% surge in the wider market. That boost only erased a small portion of recent losses, though, as shares remain lower by 36% in 2022, according to data provided by S&P Global Market Intelligence.

Levi's jump was powered by hopes that the company would have good news to report in its imminent third-quarter earnings announcement.

So what

The main reason for Levi's stock jump is that investors became less fearful about a big consumer spending pullback as part of a potentially deep recession. Markets soared through late Thursday trading after some major declines over the previous few weeks.

As a consumer discretionary business, Levi Strauss is sensitive to changing sentiment on the direction of the global economy. Its sales are likely to take a hit if consumers pull back on spending. Conversely, during free-spending times like 2021, the jeans specialist has a good shot at generating strong sales and earnings growth.

Now what

Investors also have a specific reason to watch Levi this week, as it is set to announce Q3 results after the closing bell on Thursday. Heading into that report, most investors are expecting sales to grow at roughly 12% in fiscal 2022, on top of the prior year's 29% surge. Levi's stock has declined for much of this year on fears that this growth rate will continue decelerating, but this week's announcement might contain better news.

Keep an eye on Levi's inventory levels heading into the key holiday shopping season. Its operating margin will be critical as well, as declines there might telegraph weakening earnings into early 2023. In any case, the apparel business has a bright future ahead as it pushes into new geographies and fills out its product portfolio.