Consumer Spending Is Starting to Crack. What It Means For Retail Stocks.

Consumer stocks are lagging the market. Photo: David Paul Morris/Bloomberg

Market experts and economists often talk about how resilient the U.S. consumer is. They’ll shop until they drop, as the saying goes. But there are growing concerns that consumers might be about to stop—or at least rein in—spending due to concerns about tariffs igniting more inflation.

Despite the fact that June retail sales data released Thursday were surprisingly strong, investors are still wary of betting on the consumer. Retail stocks and other consumer discretionary companies have slumped this year: The SPDR S&P Retail exchange-traded fund is down slightly in 2025, while the S&P 500 has rallied almost 7%. The Consumer Discretionary Select Sector SPDR ETF has also fallen 2%. It’s been weighed down by the drops in two top holdings: Tesla —whose woes are arguably less about a skittish consumer—and Home Depot.

Thursday’s retail report also showed that furniture and home furnishing stores, as well as appliances and electronics stores, posted declining sales in June. Shares of Home Depot competitor Lowe’s, as well as those of Best Buy, have been shunned by investors in 2025, falling 12% and 21%, respectively, this year.

“Sales of electronics, appliances, and furniture were fractionally negative again in June – all products which may be disproportionately reflecting the impact of tariffs that have been put in place already,” said Jim Baird, chief investment officer with Plante Moran Financial Advisors, in emailed comments to Barron’s.

Yes, it’s encouraging to see that consumer spending was robust in June—but that, too, needs to be put into context. Retail sales fell in May when compared to April data, and they rose only slightly from March figures.

“It’s possible that the last few months of stagnation are beginning to have an impact on consumer behavior,” said analysts at Jefferies in a report Thursday.

The investment bank does a monthly survey of consumer behavior and found that “both staples and discretionary spending growth are falling way behind trend for June.” The Jefferies analysts added that while the data “doesn’t look apocalyptic,” it is worth noting that “discretionary spending growth for the very important higher-income consumer cohort appears to be on a path of continued deceleration.”

Translation? Consumers are spending less on things like food and beverages, as well as apparel and home furnishings: Even America’s wealthiest are starting to feel the pinch from inflation.

That may not bode well for clothing retailers and department stores. In fact, department stores also reported a drop in sales in May. And Victoria’s Secret, American Eagle Outfitters, Abercrombie & Fitch, Kohl’s, Macy’s and Target have been big losers on Wall Street, with all of their stocks plunging at least 25% this year.

Consumers appear to be more inclined to pinch pennies. So it should come as no surprise that Walmart and Costco stocks are both up this year. Discounters, such as Ollie’s Bargain Outlet and dollar store chains Dollar Tree and Dollar General, are also thriving. Shares of Ollie’s are up more than 20% this year, while those of Dollar Tree and Dollar General—the latter a Barron’s 2025 stock pick —have each soared about 45%.

The deep discounters still look like good stock bargains as well, with shares of both Dollar Tree and Dollar General each trading for about 17 times earnings estimates for next year.

This newfound sense of frugality and thrift is good news for investors flocking to the shares of these discount retailers. But it’s not a great sign for many other consumer discretionary and retail stocks—or the overall economy.

Write to Paul R. La Monica at paul.lamonica@barrons.com