Black Friday & Cyber Monday: Hope Hangs on the Consumer
Key Takeaways
- Holiday spending remains strong despite economic pressures: Robust Black Friday and expected Cyber Monday sales show that many consumers continue to spend even amid tariffs, slower income growth, and rising debt.
- Consumer strength is uneven across income levels: Wealthier households are driving discretionary spending, while lower-income consumers are cutting back, creating a K-shaped recovery with mixed opportunities for investors.
- Selective opportunities exist beyond AI-driven market leaders: While AI stocks have dominated 2025, attractively valued consumer discretionary and staples companies—particularly those serving higher-income households—may offer steadier, less volatile returns.
Holiday Shopping Strength Highlights Consumer Momentum in 2025
Holiday shoppers were out in force over the weekend, despite concerns over tariffs, slow hiring, and rising debt. Some would say that this year’s stock market has been driven entirely by artificial intelligence (AI) enthusiasm, and we have indeed seen those stocks outpace the broader market. But investors shouldn’t overlook the opportunities among the unloved 493, those stocks outside of the AI-dominated Magnificent 7. Many of those stocks offer attractive valuations, and if this weekend’s sales figures are any indication, the consumer sector may be worth a closer look.
Resilient U.S. Consumer Spending Despite Tariffs and Slowing Income Growth
US consumer spending has remained surprisingly resilient through 2025 even as tariffs have raised prices and as real disposable income growth has slowed. Retail sales, excluding autos and parts, returned to roughly 4% year-over-year growth by the third quarter, in the neighborhood of pre-pandemic levels. Black Friday sales figures show 180 million shoppers spent between 4% and 5% more this year than last. Cyber Monday is expected to show similar, robust growth.
Source: U.S. Census Bureau, Advance Retail Sales: Retail Trade and Food Services, Excluding Motor Vehicle and Parts Dealers [RSFSXMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RSFSXMV, November 30, 2025.
Household Debt Burdens Remain Manageable for Most Consumers
And while consumer debt levels have risen, the burden from that debt on household finances remains below pre-pandemic levels. This leaves the consumer well positioned to continue its recent pace of spending.
Source: Board of Governors of the Federal Reserve System (US), Household Debt Service Payments as a Percent of Disposable Personal Income [TDSP], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TDSP, November 30, 2025.
A K-Shaped Recovery Creates Winners and Losers in Consumer Markets
And yet, not all consumers are feeling flush. The so-called K-shaped recovery correctly captures the asymmetry between wealthier consumers and those of more modest means. In the lower half of the income distribution, households are spending a much higher proportion of income on necessities and have little asset wealth to draw on for discretionary items. They are the ones searching most diligently for the lowest prices and reducing outlays even at low-priced retailers. This makes some consumer stocks decidedly less attractive, even at “cheap” valuations.
Diverging Performance Between Consumer Discretionary and Staples Stocks
Consumer stocks include both those companies providing discretionary items and those delivering necessities, and the stock performance of those groups have diverged this year, as discretionary goods providers have outpaced those providing staples. Yet, both groups have underperformed the broader S&P 500 Index. We see solid foundations underlying the AI-driven appreciation of companies such as Nvidia, Amazon, and Microsoft, but there needs to be more in an investor portfolio than just these. Consumer stocks in a country with ongoing increases in personal income and growing wealth at the upper half of the income distribution can offer less volatile returns at cheaper valuations than the attention-grabbing AI stocks. Staples stocks are among the most stable and often deliver higher dividend yields, which can buffer an investor’s portfolio from the inevitable swings in stock prices. Among consumer discretionary, we continue to find growth opportunities in those companies serving wealthier households.
Holiday Spending Strength Supports Selective Opportunities in Consumer Stocks
The strength of retail spending over the holiday weekend shows that the plenty of consumers remain enthusiastic about their prospects as 2025 comes to a close. But when looking for consumer stocks, we remain wary of those serving those struggling at the lower end of the income distribution. As with Black Friday deals, investors had better take the “buyers beware” advice to heart.
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