The United States Census Bureau will release November’s Retail Sales data this Wednesday. An increase of 0.4% is anticipated after seeing no change in October. This data is important because it relates directly to consumer spending, a key part of the Gross Domestic Product (GDP), which helps us understand the health of the economy.

Signs of Consumer Fatigue

The delayed November retail sales data came in at +0.2%, which is lower than the expected +0.4%. This indicates that consumer spending is slowing down. The flat growth from October 2025 supports the idea that holiday shopping was weaker than expected. Additionally, last week’s jobs report showed the unemployment rate rising to 4.1%. Together, these signs suggest that the economy may cool off as we move into 2026. This weak consumer data complicates things for the Federal Reserve. The latest Consumer Price Index (CPI) report for December showed core inflation stubbornly at 3.4%. As a result, the market is quickly adjusting its outlook on interest rates. Fed funds futures now show a 65% chance of a rate cut by the March meeting, up from 40% just a week ago. The mix of slowing growth and ongoing inflation creates a challenging environment that may lead to various trading strategies. Given this situation, we expect more market volatility after a calm end to 2025. The VIX, which was around 13, has already risen to nearly 15, and we believe it could increase further. Traders should consider purchasing short-term call options on the VIX or volatility-linked ETPs to protect themselves against a possible market downturn as the effects of a weakened consumer become clearer.

Equity Options Opportunities

This situation also opens up chances for trading equity options, particularly in the consumer discretionary sector (XLY). We see potential in buying put options for retailers that are very sensitive to consumer spending, as they may lower their forecasts for the first quarter of 2026. On the other hand, the higher likelihood of a Fed rate cut could benefit growth and technology stocks (QQQ) sensitive to interest rates, making long call spreads an appealing way to prepare for a potential rally. We observed a similar trend in late 2023 when signs of a slowing economy led to a strong market rally driven by hopes of a Fed shift. However, this time, inflation appears harder to control, which could limit the Fed’s ability to lower rates as aggressively as some are hoping. This indicates that any rally driven by “bad news is good news” might be short-lived, making defined-risk strategies, such as spreads, a smarter choice than outright long or short positions. Create your live VT Markets account and start trading now.

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