Retail ETF Momentum as a Leading Indicator for Q4 Consumer Spending

The fourth quarter has long been a critical barometer for U.S. consumer spending, with holiday-driven demand surges accounting for a disproportionate share of annual retail revenue. In 2025, however, the interplay between macroeconomic pressures and retail ETF performance has introduced new layers of complexity for investors. As sticky inflation, new tariffs, and declining consumer confidence create a backdrop of caution, the momentum of retail ETFs-particularly the VanEck Retail ETF (RTH)-has emerged as a nuanced leading indicator for timing discretionary retail sector investments.

The Disconnect Between Sentiment and Spending

Consumer confidence metrics have deteriorated sharply in 2025, with the University of Michigan's Index of Consumer Sentiment falling to 51.0 in November, the lowest level since 2022. Similarly, the Conference Board's Consumer Confidence Index dropped to 94.2 in September, reflecting a 7.0-point monthly decline. Yet, actual spending patterns tell a different story. Despite these headwinds, the National Retail Federation (NRF) projects a record $1.01–$1.02 trillion in holiday sales for 2025, a 3.7% increase from 2024. This divergence underscores a key insight: consumer behavior is increasingly decoupling from sentiment, with shoppers prioritizing essential and value-driven purchases over discretionary spending.

Retail ETFs like RTH, which holds major retailers such as Amazon, Walmart, and Costco, have capitalized on this dynamic. RTH's year-to-date gain of 11% in 2025 outperformed the broader consumer discretionary sector, which posted a meager 0.51% return. This outperformance suggests that ETFs with diversified exposure to both e-commerce and brick-and-mortar retailers are better positioned to absorb macroeconomic shocks while benefiting from holiday-driven demand.

ETF Momentum as a Predictive Tool

Academic research and market analysis highlight the predictive power of retail ETF momentum in Q4. A 2025 bibliometric study identified a strong correlation between ETF performance and consumer spending trends, particularly when adjusted for inflation and tariff impacts. For instance, the Redbook Index-a real-time gauge of same-store sales-showed a deceleration to 5.0% year-over-year growth by October 2025, down from 6.6% in early September. This moderation aligns with RTH's mixed performance, as holdings like Sprouts Farmers Market (SFM) faced weaker sales growth due to shrinking consumer budgets, while value-focused retailers like Ollie's Bargain Outlet (OLLI) saw steady demand.

The timing of ETF momentum also offers strategic insights. Early Q4 data revealed a shift in consumer behavior toward extended shopping periods, with over half of shoppers beginning holiday purchases in October or earlier. This trend is reflected in digital advertising metrics: improved conversion rates and lower cost-per-action (CPA) for direct-to-consumer (DTC) brands indicate heightened engagement with value-driven messaging. For investors, this suggests that ETFs with exposure to digitally agile retailers-such as RTH's inclusion of Amazon and Walmart-may provide earlier signals of holiday demand than traditional metrics like seasonal hiring trends.

Strategic Implications for Investors

The 2025 holiday season has become a test of consumer resilience, with tariffs and inflation acting as headwinds. However, the performance of retail ETFs offers a framework for timing investments. For example, RTH's low expense ratio and 0.70% dividend yield make it an attractive vehicle for capitalizing on the anticipated $1 trillion holiday sales surge. Moreover, the ETF's diversified holdings mitigate single-stock risks, as seen in Abercrombie & Fitch's (ANF) Q3 outperformance-driven by Hollister's growth-compensating for weaker performance in other segments.

Investors should also consider macroeconomic indicators when interpreting ETF momentum. The Deloitte 2025 Holiday Retail Survey found that 55.2% of consumers cited economic conditions as a factor in their spending plans, with a focus on price-sensitive purchases. This aligns with RTH's exposure to off-price retailers and e-commerce platforms, which are better positioned to capture value-driven demand. Conversely, ETFs with higher concentrations in luxury or discretionary segments may lag, as younger shoppers-particularly those with tighter budgets-curtail spending.

Conclusion

Retail ETF momentum in Q4 2025 serves as both a reflection of and a response to shifting consumer behavior. While declining confidence metrics signal caution, the resilience of holiday spending projections and the performance of ETFs like RTH highlight the sector's ability to adapt. For investors, leveraging ETF performance as a timing strategy requires a dual focus: monitoring real-time indicators like the Redbook Index and digital engagement metrics, while aligning portfolio allocations with the value-driven dynamics shaping the 2025 holiday season. As the NRF's $1 trillion forecast materializes, the interplay between ETF momentum and consumer spending will likely remain a critical lens for navigating the retail sector's evolving landscape.