Retail spending from November 1 through December 24 increased 5.1% from a year ago, according to Mastercard SpendingPulse. Shoppers spent more than $850 billion during the holidays.
Unfazed by volatility on Wall Street, consumers flooded into stores and bought clothes and home decor online. Gas prices have dropped by more than 20 cents a gallon over the past month, giving shoppers extra cash for the holidays.
"Consumer confidence translated into holiday cheer for retail," said Steve Sadove, senior advisor for Mastercard and former CEO of Saks Fifth Avenue.
The strong holiday shopping season is another sign many Americans are disconnected from the day-to-day stock market action.
"What happens in the stock market doesn't necessarily lead to difficulties in the retail industry since stock ownership is not widely spread in the US," said Michelle Grant, head of retailing at Euromonitor International.
Growth online continued at a breakneck pace this holiday. Online sales rose more than 19% compared to last year, according to Mastercard.
Online pickups and mobile shopping have been popular options this holiday as chains look for new ways to reach shoppers. Walmart, for example, has added grocery pickup to around 2,100 stores across the country, while Target has added it to around 1,000 locations.
Adobe Analytics said pickup sales increased 47% from a year ago, while mobile spending rose 57% from last year.
Despite previously warning of a weaker-than-expected holiday season, Amazon said on Wednesday that it had another record stretch.
Toys, Echo devices, and Amazon's expanding clothing and home furnishing brands like Goodthreads and Stone & Beam were some of its best selling items. Amazon also got a boost from Whole Foods and new stores like Amazon Go, Amazon Books, and Amazon 4-Star.
Amazon offered free shipping on all holiday orders for the first time this holiday, a signal that brick-and-mortar stores are starting to apply more pressure.
"Traditional retailers are starting to catch up to Amazon," Jefferies analyst Randal Konik said in a research report this month.
Investors have driven down retail stocks over the last three months during the broader market downturn. The S&P 500 retail index (XRT) has tumbled close to 25% during that period as investors worry about rising costs, tariffs, and a slowdown in global economic growth.
But the strong holiday sales data offered retail investors a brief respite from the bruising stretch. Walmart (WMT), Target (TGT), Costco (COST), Macy's (M), and Kohl's (KSS) all gained on Wednesday.
Still, troubling signs peaked through the holiday data. The rise of online shopping is a mixed blessing for retailers, since higher shipping costs will probably weigh on their profit margins. Target cut its minimum order requirement for the first time this holiday.
"Margins will not be a happy place in retail for the foreseeable future for most," Cowen analyst Oliver Chen said in a report on Wednesday.
In addition, spending at department stores fell 1.3% from last year, despite 10.2% growth online, according to Mastercard. Electronics and appliance sales also fell 0.7%, which could hurt Best Buy (BBY).
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