Consumer Sentiment Surge Sparks a Bull Run in Discretionary Stocks

The U.S. consumer has returned with a vengeance. After months of doldrums, June 2025 saw a dramatic rebound in consumer confidence, driven by a truce in trade wars and easing inflation fears. This revival isn't just a blip—it's a signal that undervalued consumer discretionary stocks are primed for a comeback. Let's unpack the data and map the opportunities.

The Sentiment Rebound: A Catalyst for Discretionary Stocks

Consumer sentiment, as measured by the University of Michigan, jumped 16% in June to 60.5—the first monthly improvement in six months. The Conference Board's index also surged to 98.0, ending a five-month decline. The catalyst? A temporary pause on tariffs on Chinese goods and a geopolitical truce that eased fears of a trade-induced recession.

But here's the kicker: pent-up demand is unleashed. Plans to purchase homes, cars, and services jumped sharply after the May 12 trade deal. Even lower-income households, despite stagnant wages, are dipping into savings to spend. As Stephanie Guichard of the Conference Board noted, this rebound isn't just about policy—it's about consumers “resetting their expectations” after tariff-induced chaos.

Inflation Moderation: The Silent Partner to Recovery

While headlines fixate on trade, the Federal Reserve's inflation data tells a quieter but equally important story. Year-over-year inflation dipped to 2.4% in May—well below the 3.0% threshold that had spooked markets earlier.

This moderation matters. With the Fed holding rates steady at 4.3%, consumers are finally breathing easier. Lower inflation expectations (now 6.6% vs. 6.5% in May) mean households can spend more on discretionary items without fearing price spikes. E-commerce giants like Amazon are capitalizing here: 75% of shoppers plan to participate in Prime Day, with electronics and home goods topping wish lists.

Sector Spotlight: E-Commerce, Luxury, and Home Improvement

1. E-Commerce: Riding the Mobile Wave

Mobile commerce is the new battleground. Salsify's data shows 59% of consumers now prefer smartphones for shopping, and 62% chase limited-time discounts. Amazon's Prime Day alone could drive $12 billion in sales this summer.

Investment angle: Overweight in e-commerce leaders like Amazon (AMZN) and Shopify (SHOP). Look for companies with strong mobile optimization and flash-sale strategies.

2. Luxury: The Resilience Play

Luxury brands are defying the pessimism. Despite weak sentiment metrics, real consumption of high-end goods has grown at a 3.4% annual clip since 2021—outpacing pre-pandemic trends. Why? Affluent households, less reliant on wage growth, are splurging on discretionary items like designer handbags and SUVs.

The Zillow Luxury Housing Report confirms this: Top-tier home values rose 2.7% year-over-year, outperforming the broader market.

Investment angle: Luxury stocks like LVMH (LVMUY) and Tiffany (TIF) offer pricing power and brand durability.

3. Home Improvement: Navigating Tariffs

Home improvement stocks are a mixed bag. Retailers like Home Depot (HD) and Lowe's (LOW) face tariff-driven cost pressures, but demand is surging. The National Retail Federation projects 2025 sales growth of 2.7%–3.7%, fueled by low unemployment and real wage gains.

Investment angle: Focus on companies with domestic supply chains (e.g., Lumber Liquidators) or those pivoting to “feel-good” small projects (e.g., bathroom renovations).

Risks and Considerations

Don't get complacent. Tariffs on Chinese goods could resume in July, and income stagnation remains a drag. The Fed's stance—no cuts until September—also limits the downside cushion.

Investment Strategy: Where to Allocate Now

1. Overweight e-commerce: Amazon (AMZN), Shopify (SHOP).
2. Luxury staples: LVMH (LVMUY), Coach (COH).
3. Home improvement with hedged exposure: Home Depot (HD), Menards (M).

Avoid sectors like casinos (down 25.6% YTD) and auto manufacturers hit by trade-related uncertainty.

Conclusion

The consumer is back—armed with pent-up demand, easing inflation, and a truce in trade wars. While risks linger, the data screams that now is the time to buy undervalued discretionary stocks. E-commerce, luxury, and home improvement are the sectors to watch. As the Fed stays patient and sentiment recovers, this isn't just a rebound—it's the start of a new cycle.

The bulls are awake. Don't miss the ride.