Consumer Spending Is Slowing—But These Stocks Will Still Thrive

Key Points

• The market is clearly rotating, with money moving out of the discretionary space and into the defensive space as a sign of fear.
• With slowing consumer spending, institutional capital has started to rotate to reflect this broader shift.
• Wall Street analysts agree as they have made their price targets and valuations clear.

For the first time in nearly two years, the rate of consumer spending in the United States has posted a contraction, signaling a potential weakness wave brewing up for the consumer cyclical names in the stock market and the broader economy. While most investors would just let a piece of data like this fly over their portfolios, the ones that make the big money will realize what’s at stake here.

Simply put, weakening cyclical data could cause a flight to “Safety,” which is typically associated with volatile markets, but volatility doesn’t have to be present for this rotation. If there are other months of contractions to be reported from the United States consumer, who makes up a large share of the economy’s GDP, then investors will gradually see capital start to shift away from cyclical and into defensive names.

This is where today’s list of consumer staples stocks comes into play. By keeping a hold on stocks like Colgate-Palmolive NYSE: CL to have exposure to some of the most stable and predictable stream of cash flows the market can offer, or some of the upside inherent today in the energy sector through Exxon Mobil Co. NYSE: XOM. For those who find investing in individual stocks to be too risky, there’s also the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP.

The Markets Have Voted Defensive

Investors have recently started gauging the different levels of performance between cyclical and defensives. If price action is any indication of market sentiment (which it often is), then the conclusion would be that a certain amount of hedging is happening right now in the broader markets.

Over the past month alone, the consumer staples ETF has outperformed the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY by as much as 10.5%, a significant amount considering that these are two exchange-traded funds (ETFs) that are not known for moves well into the high single-digit range, much less double-digits.

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The meaning behind this could be twofold. First, investors and markets are finding defensive names more fitting to the current environment, which has shown itself to be a contracting one from the consumer end of things. More than that, there is concrete evidence of this theme happening right now, as institutional buying activity would suggest.

As of February 2025, allocators from Ameriprise Financial decided to boost their holdings in this staples ETF by as much as 11.6%, bringing their net position to a high of $320.2 million today. On the other hand, up to $3.5 billion of institutional selling took place in the discretionary ETF instead, crystalizing this rotation for investors to keep in mind.

Colgate Stock’s Premium Tells Investors All They Need to Know

Whenever the market sees an opportunity to find a solution to a bigger problem, such as finding a safe stock to cushion potential volatility in the discretionary space caused by slowdowns in consumer spending, a premium is always justified for the stocks that can deliver on a solution.

This is where Colgate’s valuation comes into play. At a massive 136.2x price-to-book (P/B) ratio today, some investors would be wary of buying what seems to be an “Expensive” stock on the outside without realizing that there is a much bigger reason for the market to be willing to pay this much for the name.

With this in mind, investors can also look to Wall Street analysts, who have kept a consensus price target of up to $101.6 on the stock, which calls for a net upside potential of 11.3%. Considering Colgate's stability and size, double-digit upside is not common in stocks like this one, so investors are in for a terrific bargain.

More Momentum, More Upside For Exxon Mobil Stock

After recently reaching up to 88% of its 52-week high level, momentum seems to favor Exxon Mobil today, enough to justify other participants remaining bullish on it for now. Investors can see this through recent boosts from Wall Street analysts, particularly those from Wells Fargo.

As of February 2025, these analysts kept their Overweight rating for Exxon Mobil and called for its fair valuation to be closer to $135 per share. This new view would call for up to 22% of additional upside in the stock from where it trades today.

Considering that people indirectly rely on oil daily for fuel and manufacturing, times of consumer spending slowdowns outside of essentials and staples could reiterate the importance of oil in the global economy.