In June 2025, US wholesale inventories rose by 0.2%, a shift from a previous decline of 0.3%. This reflects changes in the wholesale sector’s inventory for that month. Retail inventories, excluding automobiles, stayed the same, showing a 0.0% change, compared to a revised 0.1% increase from the earlier 0.2%. These number adjustments highlight trends in stock levels and consumer demand.

Signs of a Slowing Economy

The June inventory data suggests that the economy is slowing down. The small uptick in wholesale inventories, along with unchanged retail stock, indicates that businesses may have too much merchandise as consumer demand weakens. This mismatch hints that companies might need to cut back on future orders. Other recent economic reports support this view. The latest estimate for Q2 GDP shows that annualized growth has slowed to 1.7%. Additionally, the ISM Manufacturing PMI for July dropped to 49.8, indicating slight contraction in the manufacturing sector. Together, these figures suggest the economy is losing momentum as we move into the third quarter. Given this situation, we think market volatility is currently undervalued, with the VIX staying around 15. The calm market response to these warning signs creates an opportunity. We see potential in purchasing longer-dated volatility, like VIX futures for September or October, before the market adjusts to the growing risks.

Managing Equity Portfolios

For traders managing equity portfolios, we recommend adding downside protection in the coming weeks. Buying out-of-the-money put spreads on the S&P 500 can be an effective way to hedge against a potential 5-10% market drop. This strategy allows for upside potential while limiting losses if the market declines. We’re also watching the consumer discretionary sector closely, as it responds directly to trends shown by retail inventory data. The stable inventory levels, especially excluding automobiles, reflect retailers’ caution about consumer spending. Taking bearish positions on select retail ETFs could offer a more focused approach to this trend. Create your live VT Markets account and start trading now.

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