Consumer Stocks Take a Hit as Tariffs and Trade Wars Spook Investors

The consumer discretionary sector, the engine of American spending, slammed the brakes this afternoon, falling 0.85%—the second-worst performer in the S&P 500. This isn’t just a blip; it’s a stark warning about the fragility of consumer confidence in the face of rising tariffs, slowing growth, and a White House determined to rewrite the rules of global trade. Let’s break down what’s happening and what it means for your portfolio.

The Catalyst: Tariffs and the Trade War

President Trump’s latest move—a 100% tariff on foreign-produced movies—has sent shockwaves through markets. While the film industry itself isn’t the biggest chunk of consumer spending, investors are now asking, “Where’s the line?” The fear is that these tariffs are just the start of a broader trade war that could disrupt supply chains, spike prices, and crush discretionary spending.

The Q1 2025 GDP contraction of 0.3% isn’t helping either. This is the sharpest drop since the pandemic, and it’s directly tied to the drag of tariffs on everything from cars to appliances. When businesses can’t get parts or consumers can’t afford to buy, the sector that thrives on “wants” (not “needs”) gets whacked.

The Worst-Performing Stocks

The pain isn’t evenly spread. Two stocks stand out as the canaries in the coal mine:

1. Deckers Outdoor (DECK):
   Down 38.5% year-to-date as of April 2025, this maker of UGG boots and other outdoor gear is getting crushed by tariffs. Why? Its supply chain relies heavily on Chinese manufacturing. Higher costs mean higher prices, and consumers are bailing fast.

1. Tesla (TSLA):
   The electric vehicle giant, once a growth darling, fell 6% on May 7 alone. Tariffs on components and competition from traditional automakers are squeezing margins. Even worse, Tesla’s pricing power is under fire as inflation and economic uncertainty hit luxury spending.

Why This Matters for Investors

This isn’t just about a few stocks—it’s a sector-wide reckoning. The Consumer Discretionary Select Sector SPDR (XLY) has now lost over 15% since late 2024, while defensive sectors like healthcare and utilities are up 3% or more. That tells you everything: investors are fleeing risk.

What to Do Now

1. Avoid Tariff-Riddled Names: Companies with heavy reliance on imported goods—like Deckers, or retailers such as Target (TGT) and Walmart (WMT)—are sitting ducks.
2. Look for Hidden Winners: Firms with domestic supply chains or pricing power might weather this storm. Think Lowe’s (LOW), which benefits from home improvement trends, or Amazon (AMZN), though it’s not immune to broader slowdowns.
3. Wait for Clarity: The market is pricing in recession fears, but if the Fed can ease rates and trade tensions ease, this sector could rebound. For now, stay defensive.

The Bottom Line

The consumer discretionary sector’s retreat isn’t just about today’s headlines—it’s a signal that the economy is on shaky ground. With the White House doubling down on tariffs and consumers feeling the pinch, investors should brace for more volatility.

But here’s the silver lining: sectors like this always rebound. The key is to avoid the losers (DECK, TSLA) and position for winners once the smoke clears. Keep an eye on the XLY ETF—if it stabilizes, it’s a sign the worst is over. Until then, tread carefully.

This isn’t a time to bet on the next big thing—it’s a time to protect what you’ve got.

Data Points to Remember:
- Consumer discretionary stocks fell 0.85% on May 7, 2025, with Tesla and Deckers leading the charge lower.
- The S&P 500’s XLY ETF is down 15% year-to-date, while defensive sectors outperform.
- Q1 GDP contraction of 0.3% confirms the economy is slowing, and tariffs are to blame.

Stay vigilant—and stay profitable.