The United States Redbook Index year-on-year reading fell to 6.7% on 20 February. The previous reading was 7.2%.
At this point in 2025, the drop to 6.7% was an early warning sign. It showed that the strong consumer spending we had been tracking was starting to slow. This mattered because it hinted that the broader economy could cool next.
Redbook As An Early Signal
The slowdown we saw in February 2025 came before weaker official retail sales reports in the second quarter. We also remember that this trend helped shape the Federal Reserve’s decision to pause rate hikes later in 2025. This is a good example of how weekly data can signal bigger moves ahead.
Now, as we review the latest data from January 2026, a similar setup may be forming. Official retail sales just posted an unexpected 0.8% month-over-month decline. That is the biggest drop in almost a year. This supports the idea that consumers may be turning more cautious again.
In this environment, it may make sense to consider buying put options on consumer discretionary ETFs, such as XLY. If consumer weakness continues, these positions could rise in value as retail-related stocks fall. This is a direct way to position for a spending slowdown.
We should also watch interest rate derivatives, especially Secured Overnight Financing Rate (SOFR) futures. If the economy keeps cooling, markets may price in a higher chance of Federal Reserve rate cuts later this year. That would likely push SOFR futures higher.
Positioning For Higher Volatility
With uncertainty rising, it may be wise to prepare for higher market volatility. Buying call options on the VIX index can act as a hedge against a market drop. Negative economic surprises often cause volatility to jump, which can make these options much more valuable.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
