Consumer Discretionary Stocks Are Back in Fashion. There’s a Case for More Gains.

Retailers’ stocks took a beating earlier in the year. Above, a shopper carries bags in Los Angeles on Thursday. (Eric Thayer/Bloomberg)

Monday’s Labor Day holiday brings the unofficial end of summer, a bittersweet moment that many people take as a signal to indulge in some retail therapy. A recent resurgent in consumer stocks indicates the shopping may have already begun.

It is a departure from how the picture looked earlier in the year.

While spending remained surprisingly resilient despite the years of inflation that followed the pandemic, consumer confidence took a major hit earlier this year. President Donald Trump’s introduction of stiff tariffs, the resultant stock market selloff, and concern about a weakening economy spelled trouble for retailers.

The SPDR S&P Retail exchange-traded fund, trading under the ticker XRT, declined nearly 22% from the start of the year through the April 8 post-Liberation Day lows, while the Consumer Discretionary Select Sector SPDR ETF, or XLY, lost about 26%. Those numbers compare with a decline of roughly 15% for the S&P 500.

Now, the consumer discretionary sector is doing just fine. Despite a slight dip in August, consumer sentiment improved this summer from its lows in the spring. Both XRT and XLY have been reaching record levels in recent days, alongside the broader market.

Amazon.com, meanwhile, has yet to close above its early February high of $242.

Renaissance Macro Research founder and Chairman Jeffrey deGraaf highlights this trend from a technical perspective in a new note Thursday, noting that XRT “has made a modest relative strength breakout as it trades at new absolute highs.” Relative strength, which refers to a security or index performing better than comparable assets, can be a signal that price gains are coming.

It isn’t just shopping sprees that are boosting consumer stocks. “Auto and components have turned positive in our relative work while cruises, hotels and some casinos start to catch a bid,” deGraaf writes. He said he is still cautious about restaurants because deteriorating relative trends lead him to believe the stocks will see increased volatility and achieve lower returns.

Consumer discretionary, though, has room to rise to catch up with the broader market’s gains so far this year. The S&P 500 closed at its 19th record high of 2025 on Wednesday, putting it up more than 10% year to date. By contrast, XRT is up about 8% and XLY—Amazon is its largest holding, at 23% of the fund—is up roughly 4%.

Some of the gains may be the result of hope that Americans will splash out on Labor Day sales as a last hurrah before tariffs send prices higher. The likelihood that they will continue could be an antidote to the end-of-summer blues.

Write to Teresa Rivas at teresa.rivas@barrons.com