The Atlanta Federal Reserve’s GDPNow model forecasts a small decline in second-quarter growth for 2025, dropping from 2.6% to 2.4% as of July 17. This change comes after recent data from the US Census Bureau, the US Bureau of Labor Statistics, and the Federal Reserve Board of Governors. Expectations for real personal consumption expenditures growth in the second quarter decreased from 1.6% to 1.5%. This reflects the latest economic conditions affecting consumer spending. The next update for GDPNow will be released on July 18.

Slowdown In Consumer Spending

We are noticing the decline in the Q2 growth forecast to 2.4%, driven by a significant slowdown in consumer spending. This suggests the economy is starting to cool more than we previously expected. This trend should guide our strategy in the upcoming weeks. Recent government statistics confirm this view, showing consumer strain. For instance, retail sales in May rose only 0.1%, which was below expectations, indicating that households are tightening their budgets due to ongoing inflation. This serves as clear evidence supporting the revised lower growth forecast. Slowing economic activity raises the likelihood of a policy change from the Federal Reserve. According to the CME FedWatch Tool, the market now sees over a 60% chance of an interest rate cut by the September meeting. We should prepare for a more cautious approach from the central bank, which will directly influence asset prices.

Strategies For Market Conditions

Given the possibility of more market fluctuations, we think volatility is currently undervalued. With the CBOE Volatility Index (VIX) near a low of 13, buying portfolio protection is particularly inexpensive. Now is a good time to buy put options on broad market indices as a hedge against a potential downturn. We also expect a noticeable shift away from sectors sensitive to economic changes. Historically, in slowing growth cycles, defensive stocks like utilities and consumer staples tend to perform better than cyclical sectors like industrials and consumer discretionary. Traders might consider selling call spreads on cyclical ETFs, believing their upside is now limited. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now