For the first time in nearly two years, the rate of consumer spending in the United States has posted a contraction, signaling a potential weakness wave brewing up for the consumer cyclical names in the stock market and the broader economy. While most investors would just let a piece of data like this fly over their portfolios, the ones that make the big money will realize what’s at stake here.
Simply put, weakening cyclical data could cause a flight to “Safety,” which is typically associated with volatile markets, but volatility doesn’t have to be present for this rotation. If there are other months of contractions to be reported from the United States consumer, who makes up a large share of the economy’s GDP, then investors will gradually see capital start to shift away from cyclical and into defensive names.
