By Steven M. Sears

Bull markets can make it appear that everything is thriving. But that superficial view obscures the fact that not all stock and sectors are participating in the rally.

For investors, this disconnect could offer opportunities.

Consider: The consumer discretionary sector is underperforming the S&P 500. The Consumer Discretionary Select SPDR exchange-traded fund, which comprises some of the nation's top retailers, is up 6.6% this year, at $239.17, compared with 14.5% for the benchmark index.

This key measure of spending suggests that consumers are cautious and nervous. If they were as excited about the economy as investors, the sector ETF would be posting stronger returns.

This story line is at odds with third-quarter earnings reports from major banks, which show that consumers are financially healthy and experiencing little or no duress. Banks have powerful insights into consumer spending, and the view from Wall Street suggests investors are too negative on the sector.

Instead, investors are discounting the bank data and placing a higher value on recent debit- and credit-card spending reports that point to a consumer spending slowdown. After all, the job market is weak, and uncertainty about the impact of tariff diplomacy is widespread.

Aggressive investors who think the disconnect will soon remedy itself can pre-position for a consumer discretionary sector rebound.

In anticipation, investors could consider building a position on the Consumer Discretionary Select SPDR. The ETF holds stocks such as Amazon.com, Tesla, Home Depot, McDonald's, Booking Holdings, TJX Cos., Starbucks, and Nike.

The simplest rebound trade is buying the ETF. Investors who are comfortable with options can buy January calls with strike prices that are either equal to, or slightly above, the ETF's price.

Call options increase in value when the underlying security rises. They also cost less than the underlying security, so less money is at risk should the investment thesis prove wrong.

There are many reasons to expect that the consumer discretionary sector is poised to stage a catch-up rally against the broad market.

Earnings season has begun anew, which will bring important updates from major retailers, while looming economic events may help consumers feel more confident about spending money.

If the Federal Reserve lowers interest rates again, as it is expected to do at least once before the year ends, companies might hire more employees, especially ahead of the critical winter holidays, which provide the bulk of retail sales.

If our optimism is misplaced, and concerns about the job market and the impact of tariffs on the price of goods continue to chill consumer spending, the trade will fail. If the ETF is below the strike price at expiration, investors will lose money.

During the past 52 weeks, the Consumer Discretionary Select SPDR has ranged from $173.10 to $243.40.

The January options expiration was chosen to include events that could cause investors to rerate the sector. It captures Black Friday and Cyber Monday retail sales reports, which are critical to determining the sector's trajectory. It also captures the Christmas season, which always has the power to move the sector.

Christmas is such an important bellwether for retail sales, and the entire economy, that investors have memorialized it with a trader's dictum: If Santa Claus should fail to call, bears may come to Broad and Wall -- the home of the New York Stock Exchange.

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October 24, 2025 21:31 ET (01:31 GMT)

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