By Teresa Rivas

Everything seems to be going well on Wall Street -- but consumer stocks aren't joining the party.

The S&P 500 and Nasdaq Composite kicked off this week by closing at new highs. Small-caps are doing even better, with the Russell 2000's year-to-date gain of more than 15% beating the pack. Corporate earnings are booming, on pace for another quarter of double-digit percentage gains as the reporting season draws to a close. Changes to the tax code means that refunds are larger than average, and the April employment report showed the U.S. added more jobs than expected last month.

That set-up, in theory, should support shoppers' splurging more on things they want, but you would never guess that from consumer stocks. The State Street Consumer Discretionary Select Sector SPDR exchange-traded fund is down more than 1% since the start of the year -- compared with gains of more than 8% and 15% for the S&P 500 and the Nasdaq, respectively. The State Street SPDR S&P Retail ETF has had it even worse, slipping almost 8% in 2026.

Individual retailers could be in for more pain too, Roth Capital Partners Chief Market Technician JC O'Hara warns.

Investors should "cut relative losers quick in this bullish tape, specifically discretionary stocks which have been a major lag on portfolio performance in 2026," he said.

The sector as a whole looks vulnerable, he writes, as consumer discretionary stocks have "fallen to their worst relative level versus the S&P 500 since late 2022."

The pain is fairly widespread, according to his analysis. Among large-cap companies, he's especially worried about the charts from Home Depot, McDonald's, TJX Cos., Booking Holdings, D.R. Horton, Expedia, and Wynn Resorts. Travel as a whole is seeing increasing downside momentum, he notes.

Among mid-cap names, O'Hara says a number look precarious: Burlington Stores, Somnigroup International, Chewy, Macy's, Ollie's Bargain, Wingstop, Abercrombie & Fitch, and Whirlpool. Specialty and department stores' performance has been underwhelming, he notes, despite the broader bullish backdrop.

For small caps, ADT, Boot Barn, Kohl's, Leggett & Platt, and Wolverine Worldwide have negative charts.

It's not just technical analysis that offers a warning about the consumer discretionary sector -- there are fundamental reasons to be wary, too.

It's true that tax refunds are larger this year than last, but the size of the increase has been smaller than previously forecast. Moreover, much of that cash is likely paying for rising gasoline costs and tariff-related price increases. That's evident in Tuesday's consumer price index report, which showed inflation at a three-year high in April.

In other words, Americans' real spending power keeps shrinking. U.S. wage growth has been decelerating, to the point that it is now back to levels from late last decade, DataTrek Research co-founder Nicholas Colas says. And when you factor in inflation, "real wages are not growing as quickly as they did in the latter 2010s," he writes. "This seems to be feeding into consumer confidence, which is a shadow of its prepandemic self."

In fact, the latest reading from the University of Michigan showed confidence hovering near all-time lows, even worse than at the height of the Covid pandemic or after the Sept. 11 terrorist attacks.

Given that consumer spending powers most of the U.S. economy, that seems like a worry. But Colas notes that it's a testament to the strength of the economy that the oil shock and geopolitical upheaval of the past year hasn't already led to a recession: "Slow growth is better than contraction, so we see the data here as bullish."

That, however, is cold comfort for discretionary stocks and their investors.

Write to Teresa Rivas at teresa.rivas@barrons.com

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May 12, 2026 14:19 ET (18:19 GMT)

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