U.S. Consumer Confidence Hits Lowest in Three Years

The U.S. Consumer Confidence Index (CCI) has reached its lowest level in three years, dropping to 94.6 in October 2025-a 1.0-point decline from September's revised reading of 95.6, according to a Conference Board report. While the Present Situation Index (which gauges current economic conditions) rose to 129.3, the Expectations Index (measuring future outlook) fell to 71.5, a level below the 80 threshold that historically signals recession risk, as noted in the same report. This divergence highlights a critical market signal: consumers are cautiously optimistic about the now, but deeply skeptical about the future. With 12-month inflation expectations climbing to 5.9% and more Americans believing a recession has already begun, the stage is set for a defensive investing playbook.

Defensive Investing: Lessons from Blend Labs

When consumer confidence wanes, investors must pivot to sectors and companies that thrive in economic uncertainty. Blend Labs, a fintech firm, offers a blueprint for resilience. Despite a 12% year-over-year decline in its Mortgage Suite revenue due to industry headwinds, the company's Consumer Banking Suite grew by 34% in Q3 2025, demonstrating the power of diversification, according to a Blend Labs Q3 2025 presentation. This pivot to high-margin, digital-first services-such as AI-driven lending platforms-allowed Blend to maintain a gross margin of 78% in the same period, according to the same presentation.

The key takeaway? Operational efficiency and adaptability are non-negotiable in a low-confidence environment. Companies with strong cash positions, recurring revenue streams, and the ability to pivot into resilient niches (e.g., consumer banking, fintech) are prime candidates for defensive portfolios. Blend's aggressive share repurchase program further underscores the importance of capital discipline during market stress, according to the presentation.

Sector Rotation: Winners and Losers in Q3 2025

The Great Sector Rotation of 2025 has accelerated as investors flee overvalued growth stocks and seek undervalued opportunities. According to a Q3 2025 review, the Federal Reserve's 0.25% rate cut in September 2025-its first of the year-sparked a shift toward sectors poised to benefit from easing monetary policy. Consumer discretionary, industrials, and materials are gaining traction, particularly in the November 2025–April 2026 window, which historically favors cyclical plays, according to the review.

Winners in this rotation include:
- AI Infrastructure & Applications: NVIDIA and Microsoft continue to dominate as demand for cloud computing and generative AI surges.
- Defense & Aerospace: Geopolitical tensions and modernization budgets are fueling long-term growth.
- Healthcare & Utilities: These sectors offer stability and dividend yields in a high-yield environment.

Conversely, sectors like commercial real estate, highly cyclical industrials without strong backlogs, and non-AI-centric tech firms are under pressure, according to a Market Minute. The market is also pricing in a broader profit growth story, moving away from its reliance on a handful of tech giants, according to the Market Minute.

The Path Forward: Diversification and Discipline

The October 2025 CCI reading is a wake-up call for investors. While the U.S. economy grew at a 1.9% annualized rate in Q3 2025, trade tensions, fiscal uncertainty, and geopolitical risks remain unresolved, according to the Q3 2025 review. A diversified portfolio-spanning asset classes, geographies, and sectors-is essential to navigate this volatility.

For those seeking to hedge against a potential recession, the data is clear: prioritize companies with strong balance sheets, recurring revenue, and the agility to adapt. As Blend Labs' example shows, even in a downturn, innovation and operational rigor can turn headwinds into tailwinds.