The United States Redbook Index (year-on-year) fell to 6.7% on 17 April, down from 7% previously.
This indicates a 0.3 percentage point decrease in the annual rate from the prior reading.
We are seeing a notable slowdown in year-over-year retail sales, with the Redbook index falling to 6.7%. While this level of growth is still healthy, the deceleration is a signal that consumer strength may be starting to wane. This is the third consecutive weekly decline, a pattern that warrants attention.
This slowdown in spending comes at a time when the latest March CPI report showed core inflation remains elevated at 3.4%, complicating the Federal Reserve’s path forward. The labor market is also showing signs of cooling, with the most recent report indicating job openings have fallen to their lowest level in nearly three years, at 8.1 million. This mixed data creates uncertainty, which is something we can trade on.
In the coming weeks, we should consider positioning for further weakness in the consumer discretionary sector, represented by ETFs like the XRT. Buying out-of-the-money put options on these names provides a low-cost way to speculate on a continued downturn in discretionary spending. This strategy offers defined risk if the consumer proves more resilient than expected.
At the same time, this economic cooling could lead the market to price in a more dovetailed Fed policy later in the year. This would likely benefit interest rate-sensitive assets. We could look at buying call spreads on sectors like utilities (XLU) or real estate (IYR) to position for a potential drop in long-term yields.
This environment of conflicting signals is ideal for a rise in market volatility. The VIX is currently trading near 15, a relatively low level that has historically preceded periods of turbulence. Buying VIX call options expiring in one to two months is a direct hedge against a potential market shock stemming from these economic crosscurrents.
We remember that in the fall of 2025, a similar pattern of weakening consumer data preceded a 7% market pullback over the following six weeks. That period also saw high-beta growth stocks significantly underperform the broader market. History suggests we should be cautious and prepare for a similar defensive rotation.
A pair trade of going long consumer staples (XLP) against a short position in consumer discretionary (XLY) could be an effective way to navigate this. This strategy allows us to profit from the outperformance of defensive names over cyclical ones. This is a market-neutral approach that isolates the trend of consumers shifting from wants to needs.
