Concerns over tariffs are causing investors to monitor consumer spending.
According to the Wells Fargo Investment Institute, consumer sectors of the U.S. stock market are still “unfavorable” due to persistent worries about how tariffs would alter consumer purchasing habits.
In a report released Monday, Douglas Beath, global investment strategist at the Wells Fargo Investment Institute, said recent second-quarter earnings from consumer businesses in the S&P 500 SPX “showed mixed results that suggested tariff uncertainties were affecting shoppers.”
As the second quarter draws to a close, Beath noted that consumer discretionary and consumer staples underperformed the S&P 500’s year-over-year earnings growth rate. Wells Fargo also monitored how the actual outcomes compared to earnings-growth projections, as shown in the chart below.
Institute for Wells Fargo Investment
According to FactSet statistics, consumer staples and consumer discretionary are among the 11 sectors of the S&P 500 index that have performed the poorest in terms of stock-market returns thus far this year, behind healthcare, energy, and real estate.
Through Monday, the S&P 500 index had increased 10.4% in 2025, which is significantly more than the 3.7% increase in the consumer-discretionary sector and the 4.1% increase in consumer staples.
On August 21, the day it announced its second-quarter results report, Walmart Inc. (WMT), the largest retailer in the consumer staples sector of the S&P 500, suffered a 4.5% decline in its share price. During the earnings conference call, CEO Doug McMillon stated that Walmart was trying to maintain low prices in spite of tariffs, but the company fell short of profit projections.
According to a FactSet transcript of the call, he stated, “We’re doing what we said we would do with regard to our U.S. pricing decisions given tariff-related cost pressures.” “We’re keeping our prices as low as we can for as long as we can.”
The willingness of businesses to absorb tariffs into their profit margins as opposed to trying to pass those increased costs on to their customers is being watched by investors.
“The unexpected drawn-out tariff scenario that has been ongoing since April has led us to revise our 2025 U.S. economic growth forecast upward, while lowering expectations for 2026,” Beath of Wells Fargo stated. “We still believe that tariff deferrals do not equate to elimination and anticipate they will ultimately constrain households and limit spending into late 2025 and early 2026,” he stated. It could “dilute the positive impacts of front-loaded tax cuts and deregulation.”
“Contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices,” according to the Fed’s most recent “beige book,” an eight-times-yearly study that compiles anecdotal information on economic circumstances. Additionally, according to the beige book, which was published on September 3, “contacts frequently cited economic uncertainty and tariffs as negative factors.”
In a phone interview, Mark Valentino, Citizens’ head of business banking, told MarketWatch that the bank’s small-business customers, many of whom are “mom and pop” stores, are attempting to adjust to the higher expenses brought on by tariffs by, among other things, looking to switch suppliers.
“Our customers are absolutely looking for replacement products and replacement countries where tariffs might be lower,” he stated. “But it’s not such an easy thing to achieve when your scale is not massive.”
Although it’s too soon to predict how much “pain” tariffs will cause small firms, Valentino said he has noticed an increase in the demand for loans from these customers at Citizens. The demand for loans may potentially be an attempt to weather a potential economic slowdown, he added, but it might also suggest that companies are “getting off the sidelines” and beginning to decide on capital projects as they recover from the initial shock of tariffs.
According to Dow Jones Market Data, the U.S. stock market ended Monday’s trading session higher, with the S&P 500 up 0.2%, the tech-heavy Nasdaq Composite COMP up 0.5%, and the Dow Jones Industrial Average DJIA up 0.3%. At the end, the Nasdaq hit a new high.
The S&P 500’s tech, consumer discretionary, and communication services sectors are represented by Big Tech stocks, which supported the index on Monday.
According to FactSet statistics, the IT and consumer discretionary sectors of the S&P 500 saw the best performance as the trading session came to a conclusion. According to the Wells Fargo note, as recently as the morning of August 29, the industries with the highest second-quarter earnings increase on a year-over-year basis were financials, tech, and communication services.
On Monday, the S&P 500, which heavily weights Big Tech, moved closer to the record high it reached just last week. According to Dow Jones Market Data, the benchmark for U.S. stocks ended the day only 0.1% short of its record closing high set on September 4.
