US Consumer Spending Stalls, GDP Takes a Hit
Speakers
Summary
- Real personal spending barely rose in January, up just 0.1%, as consumers shifted away from goods toward essentials like healthcare.
- Core inflation remains sticky, increasing 0.4% month-over-month and 3.1% year-over-year, keeping the Fed far from its 2% target.
- Q4 GDP data showed consumer and business spending were much weaker than initially thought, with real final sales falling to 0.4% from 1.2%.
- The yield curve is flattening as bond traders price in a real economic slowdown, driving yields on the long end down while the short end remains anchored by hawkish Fed expectations.
- Markets have completely priced out rate cuts for 2026 and are beginning to price in a potential rate hike by the end of 2027.
- The US is relatively insulated from the current global inflation shock compared to Europe and Australia because of abundant domestic oil supplies.
Trade Ideas
Americans cut back on goods and focused on essentials like health care. Consumer spending much weaker than thought. Sticky inflation (3.1% core) combined with a slowing economy is forcing consumers to prioritize non-discretionary items (healthcare, groceries, housing) over discretionary goods. As real personal spending stalls, companies reliant on discretionary consumer purchases will see significant earnings compression. SHORT consumer discretionary ETFs or stocks as the macroeconomic environment squeezes household budgets and forces a rotation into defensive sectors. If inflation drops rapidly without a recession, real wage growth could spur a sudden rebound in discretionary consumer spending.
We also had a durable goods orders for January report that showed defense military aircraft orders were down 23.7%... all of this is before the war. So we don't have any impact of that in this data. The massive 23.7% drop in defense orders is a backward-looking anomaly from January, before the outbreak of the current war. Given the new geopolitical reality and ongoing conflicts, defense spending will inevitably surge. The market may misprice these defense contractors based on stale January data, creating an entry point before the wartime order flow is reflected in upcoming earnings. LONG major US defense contractors to capitalize on the inevitable rebound in military procurement driven by global conflicts. Supply chain bottlenecks could prevent defense contractors from fulfilling new orders quickly, or geopolitical tensions could unexpectedly de-escalate.
The yield curve has flattened. And the reason it's flattened, even though we're expecting more inflation, is that bond traders are beginning to price in the idea of a real economic slowdown. So that's why the long end has been coming down. The market is realizing that the Fed's inability to cut short-term rates (due to sticky 3.1% core inflation) will ultimately choke off economic growth. When growth slows significantly, investors flee to the safety of long-duration US Treasuries, driving their prices up and yields down. LONG long-duration US Treasuries as a safe-haven play against a hard landing and a slowing macro economy. If inflation accelerates further, the Fed may be forced to hike rates aggressively, which could cause a sell-off across the entire yield curve, including the long end.
The rest of the world in a kind of a different position because they don't have all the oil that we have. So the impact on them is going to be much worse with inflation. Global energy shocks are disproportionately hurting foreign economies (Europe, Japan, Australia) because they rely heavily on imported energy. The US, possessing massive domestic oil reserves and production capabilities, is insulated. US energy producers will benefit from elevated global oil prices while facing less domestic economic devastation than their international peers. LONG US domestic energy producers who benefit from high global energy prices and geopolitical supply constraints. A severe global recession could destroy aggregate demand for oil, causing commodity prices to crash despite supply constraints.
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This Bloomberg Markets video, published March 13, 2026, features Michael McKee discussing XLY, RTX, LMT, GD, TLT, XLE, CVX, XOM. 4 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Michael McKee · Tickers: XLY, RTX, LMT, GD, TLT, XLE, CVX, XOM