Over the past few years, we’ve highlighted the risk of a slowdown in consumer spending as the post-pandemic surge — where consumers were flush with cash — has given way to depleted savings and rising debt levels to sustain spending. Recent data over the past four months shows a noticeable shift in consumer sentiment, with the Conference Board’s recent measure of future expectations in March tumbling to a 12-year low , marking the first meaningful slowdown in consumer spending in years. Warning signals from major consumer names like Delta, Nike, and Walmart further highlight this growing risk. Additionally, the CBOE Volatility Index retreating below 18% and its 50-day moving average suggests investor complacency, potentially ignoring the risks of a pullback driven by this consumer slowdown. Despite a recent contraction of valuation multiples on the S & P 500, it remains elevated, indicating downside risks in a slowing economy. In this environment, the timing if more favorable to add bearish exposure with a long options position as a hedge to offset potential portfolio downside. The timing for the S & P 500 shows the index stalling at a significant resistance zone of 5,700-5,775 signaling heightened risks of a larger pullback with a downside target of 5,400. Additionally, with the VIX retreating below its 50 day average, the cost of buying portfolio protection is relatively inexpensive. A pullback to 5,400 aligns with historical support levels and reflects the potential impact of a consumer-driven slowdown on equity valuations. Fundamental analysis The S & P 500’s current trades at 20.4 times forward earnings, while contracted recently, it remains 8% above the 10-year average of 18.8x, suggesting that valuations are still stretched. The decline in options implied volatility provides a favorable opportunity to purchase downside protection at a lower cost, especially as consumer sentiment deteriorates and spending slows. Bearish Thesis: Consumer Spending Slowdown: The Conference Board’s future expectations index has fallen to a 12-year low over the past four months, signaling a meaningful slowdown in consumer spending as savings dwindle and debt levels rise. Investor Complacency: The VIX retreating below 18% and its 50-day SMA indicates that investors may be underpricing the probability of a larger pullback, particularly as consumer-driven companies like Delta, Nike, and Walmart issue warnings. Elevated Valuations: The S & P 500’s forward PE of 20.4x, 8% above the 10-year average, leaves the market vulnerable to a correction, especially with economic growth slowing. Technical Resistance: The S & P 500 stalling at the 5,700-5,775 resistance level increases the likelihood of a pullback, with a downside target of 5,400. The trade To hedge against potential market downside, I’m buying the SPDR S & P 500 Trust (SPY) May 16, 2025 $575/545 Put Vertical @ $7.04 Debit This entails: Buying the May 16, 2025 $575 Put @ $11.44 Selling the May 16, 2025 $545 Put @ $4.40 View this Trade with Updated Prices at OptionsPlay The maximum reward is $2,296 if SPY is below $545 at expiration. The maximum risk is $704 if SPY is above $575 at expiration. The breakeven point for this trade is around $568 The Risk to Reward ratio of this is slightly better than 3 to 1 This strategy positions you to hedge against a potential market pullback, leveraging the S & P 500’s technical resistance and cheap options premiums amidst a slowing consumer economy. By using SPY as a hedge, this put vertical offers a way to offset portfolio downside with defined risk, providing protection as the market risks a decline to 5,400. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited! 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A stock market hedge if this comeback is a head fake and bigger losses are ahead
