The University of Michigan Consumer Expectations Index rose to 48.5 in May, up from 48.1 in the previous reading.
The index measures how US consumers expect the economy to perform in the months ahead.
Market Volatility And Options Positioning
The slight rise in consumer expectations to 48.5 is not a sign of strength, but rather a sign of pessimism becoming slightly less severe. Given this historically low level, we see continued high volatility as the market struggles for clear direction. Options traders might consider selling premium through strategies like iron condors on major indices, betting on a range-bound market rather than a breakout.
This weak consumer data complicates the Federal Reserve’s next move, especially with core inflation recently holding around 3.1%. The Fed is unlikely to raise interest rates into a weakening consumer environment, which reinforces our view that the next move is a cut later this year. We are watching derivatives on federal funds futures to gauge shifts in the market’s rate-cut expectations.
From a sector perspective, we remain cautious on consumer discretionary stocks. We saw during the slowdown in 2025 that even small rallies in sentiment were not enough to boost spending on non-essential goods when wallets were tight. Traders should look at put options on discretionary ETFs or consider pairs trades, such as being long consumer staples and short discretionary.
Looking back, this small uptick is reminiscent of a similar brief rise in consumer sentiment we saw in the third quarter of 2025, which quickly reversed as energy prices climbed. The current reading of 48.5 is still well below the 50-mark that separates contraction from expansion, signaling that recessionary fears are not off the table. Therefore, buying protective puts on broad market ETFs remains a prudent hedging strategy for the weeks ahead.
