Consumer Discretionary has long been a favorite for investors looking to ride the wave of consumer spending — but 2025 may not be its year.
With rising delinquencies, increased reliance on credit, and a broader economic slowdown looming, this sector faces significant headwinds. In fact, the average rate on balances has moved to nearly 22%, the highest on record since 1994, signaling consumer stress.
While there are always individual winners in any space, as a whole, Consumer Discretionary might be too risky without steep discounts.
A Sector Under Pressure
The Consumer Discretionary (XLY) sector, which includes major players like Amazon (AMZN), Tesla (TSLA) and Nike (NKE), thrives on consumer confidence and spending.
However, the cracks in the economy are becoming harder to ignore. Credit card debt has ballooned, and delinquencies are on the rise. Households, particularly middle- and lower-income ones, are feeling the pinch of higher interest rates and inflation.
Even the top 1% — traditionally resilient spenders — could start scaling back, sending ripples through the sector.
This isn’t just speculation. Data from recent quarters indicates rising cancellation rates in big-ticket categories like housing and auto loans, reflecting broader caution among consumers. While discretionary spending isn’t vanishing, it’s likely being reallocated to necessities.
But it’s not all doom and gloom.
Consumer Discretionary stocks can still present opportunities — but only at the right price. Historically, corrections in this sector have been sharper than those in broader indices like the S&P 500.
For instance, during the last major downturn in 2022, Consumer Discretionary corrected over 40%, outpacing the index’s decline.
If a similar scenario unfolds, I’d consider entering the sector after a pullback of 18% or more. However, volatility tends to be higher here, so any entry needs to be well-timed and based on clear technical or fundamental signals.
Safer Bets in Staples and Indices
For those looking to minimize volatility, XLY or broader indices like the S&P 500 (SPY) or Nasdaq (QQQ) are likely better options. Consumer Staples (XLP), covering essentials like food and household products, tend to hold up during economic slowdowns.
While they may not deliver outsized gains, they offer more stability in turbulent markets.
On the flip side, sticking with the S&P 500’s overall diversity or the tech-heavy Nasdaq allows you to capture broader market trends without getting caught in the higher volatility of a single sector.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
LIVE AT 4 PM: THE WORLD PREMIERE ENCORE…
It’s getting close to 4 p.m. ET, when Lance Ippolito will be in the live room once again with his good friend Nate Tucci.
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He’ll also show you the ticker he’s banking on to deliver the trade and payout.
Fingers crossed, because we can’t guarantee gains or prevent losses — no such thing as “guaranteed” when it comes to trading.
But if you’d like to see everything Lance is doing to target the $5,000 windfall…
