McDonald’s CEO Chris Kempczinski recently talked about how economic challenges are affecting different income groups. He pointed out a gap in experiences: those making over $100,000 are doing well, while middle- and lower-income consumers are struggling. Kempczinski noticed that lower-income customers are visiting McDonald’s less often. Many are skipping meals or eating at home, while wealthier customers continue to spend as usual, without choosing cheaper options.

Franchise Revenue Insights

He reported that franchisees are earning 10% less than their usual cash flow peaks. This trend suggests a shift towards luxury markets and brands that can maintain high prices instead of focusing on middle- and lower-income consumers. This could lead to two areas for investment: luxury markets and budget-friendly options, like dollar stores. However, budget stores may suffer if social assistance programs are cut. It’s clear that lower-income consumers are struggling while wealthier individuals spend freely. Reports show double-digit drops in foot traffic for certain groups, indicating a growing weakness where budget-conscious customers are concerned. This is supported by the August 2025 jobs report, which revealed strong wage growth in professional services, but little change in leisure and hospitality jobs. Retail sales data also showed a 4% drop in mid-tier department store sales, while luxury car sales surprisingly increased by 6%. This shows that the spending gap is not just a feeling; it’s backed by data.

Investment Strategy Adaptations

Given this situation, it may be wise to buy put options on companies and ETFs that depend heavily on middle-income consumers. Sectors like casual dining, mass-market apparel, and big-box retailers not focused on essentials could face challenges. This pattern is similar to what we saw in late 2023 before a wider market slowdown. On the other hand, there is potential for investment in high-end brands with strong pricing power. We should consider buying call options on luxury goods companies, premium travel services, and high-end home improvement retailers. These businesses cater to customers who seem unaffected by current economic issues. A more advanced strategy could involve pairs trades that take advantage of this widening gap. For instance, we might buy call options on a luxury retail index and put options on a broad consumer discretionary ETF like the XLY. This approach aims to benefit from the luxury sector’s performance while avoiding overall market risks. This economic divide also suggests small-cap stocks may underperform, as they are more sensitive to the health of U.S. consumers. The Russell 2000 has already trailed behind the S&P 500 this past quarter. We could use options on the IWM ETF to bet on this trend of ongoing small-cap weakness. Create your live VT Markets account and start trading now.

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