These two corners of the stock market haven't fallen this far together since 1990 — a cautious sign for the economy

Consumer-discretionary and consumer-staples have become two of the S&P 500’s worst-performing sectors in 2025 — the first time these key consumer groups have fallen this far together since 1990 and an unprecedented low ranking for SPX consumer sectors — a sign that Wall Street sees cracks in U.S. household spending. The weakness is notable because it emerges even as shoppers prepare for the holiday season, implying investors may be pricing in a broader pullback in consumer demand that could pressure retailers and other consumer-dependent earnings. Investors should treat the twin-sector slump as a cautionary indicator for cyclicals and consumption-exposed assets.

Analysis

The consumer-discretionary and consumer-staples sectors rank among the S&P 500’s worst performers for 2025, marking the first time since 1990 that these two key consumer groups have fallen this far together and an unprecedented low ranking for SPX consumer sectors. This simultaneous weakness in a cyclical group (discretionary) and a defensive group (staples) indicates market participants are pricing in a broader deterioration in U.S. household spending rather than isolated, idiosyncratic company issues.

The sector slump is notable because it coincides with the run-up to the holiday shopping season, implying investors expect weakening demand to surface despite seasonal spending patterns. Sentiment metrics are consistent with this view: a moderately negative sentiment score (-0.45) and a nontrivial market impact score (0.45) point to active repositioning and flow-driven downside risk.

Immediate implications are higher downside risk to retailer and consumer-facing earnings and a greater likelihood of downward revisions to consumption assumptions if early holiday or retail data confirm the market’s caution. Key monitoring points are incoming consumption data and positioning flows; absent a clear rebound in spending indicators, expect elevated volatility and selective credit/earnings pressure in consumer names.

Key Decisions for Investors

• Re-assess and consider trimming exposure to consumer-discretionary names and staples positions that rely on resilient household spending, favoring companies with clear pricing power and strong balance sheets
• Increase monitoring cadence for real-time consumption indicators (holiday sales, weekly same-store sales, retail sales and consumer sentiment) and use these prints as explicit triggers to add or reduce exposure
• Implement downside protection (reduce portfolio beta, add hedges or put protection) against a sustained consumer pullback until sequential data contradicts the current market signal
• Consider relative-value rotation away from broad consumption exposure into less demand-sensitive assets or cash to limit downside while the twin-sector weakness resolves