Tough Road Ahead for U.S. Consumers? ETFs to Consider

Amid tariff uncertainty and a clouded U.S. economic outlook, consumer confidence continues to erode, with most buyers reassessing their discretionary spending. U.S. debt concerns and a tariff-induced market sell-off also continue to drive market volatility and strain consumer finances. 

President Trump’s tariff proposals have been weakening the economic sentiment in the United States. According to the BBC, signs of a consumer pullback have started to emerge, as retail sales fall by 0.9% from April to May, marking the second consecutive monthly decline and the first back-to-back drop since late 2023. While the U.S. economy continues to grow, expectations point to a significant slowdown compared to 2024.

According to a recent Yahoo Finance/Marist Poll, as quoted on Yahoo Finance, nearly 80% of Americans are worried about how the tariffs could affect their wallets, with the anxiety already influencing their spending decisions. Per the poll, the biggest spending cutbacks are expected in categories like entertainment, clothing, tech, furniture and appliances.

More Into the Survey

More than 50% of the survey respondents believe that President Trump’s tariffs will negatively impact the U.S. economy, with inflation being the main concern, followed by tariffs and housing costs.

Dampening consumer confidence is mirrored by the Conference Board’s Consumer Confidence Index, which fell to 93 in June from 98.4 in May, marking a 5.4-point drop, due to tariff-induced inflationary fears.

Consumers are already adjusting their spending behaviors, with 39% and 34% of the survey respondents stating to cut summer travel and deferring large purchases, respectively. The shift in consumer spending patterns is already visible in retail earnings. According to Yahoo Finance, dollar store chains like Dollar General DG and Dollar Tree DLTR have performed better than broader retail peers, as even higher-income consumers look to save amid rising prices and economic uncertainty.

Mounting Debt Pressures Add to Consumer Woes

Concerns over U.S. debt levels can add pressure to investor and consumer confidence, making investors risk-averse and curtailing discretionary spending. President Trump’s tax-cut and spending bill was passed by Congress last week, reigniting the United States’ mounting long-term debt risks.

According to BBC, the tax-slashing bill is projected to add at least $3 trillion to the already staggering $37 trillion U.S. debt load. Per Reuters, lawmakers raised the U.S. government’s borrowing limit by an additional $5 trillion.

According to Congressional Budget Office estimates, the bill could slash $4.5 trillion in tax revenues and reduce spending by $1.2 trillion over the next decade.

ETFs to Consider

Preserving capital and cushioning volatility is key for investors looking to navigate a volatile period ahead. In the current economic landscape, increasing exposure to consumer staple funds makes the sector an attractive option. Investing in these sectors provides dual benefits, protecting portfolios during market downturns and offering gains when the market trends upward.

Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can put more money in consumer staples funds to safeguard themselves from potential market downturns.

The potential slowdown in the economy could benefit consumer staple stocks, as these companies manufacture everyday necessities such as food, beverages and household items. Additionally, surging household debt levels could burn a significant hole in consumers’ pockets and prove to be a positive for these funds.

The S&P 500 Consumer Staples Index has gained 6.20% year to date and 9.44% over the past year, outperforming the S&P 500 so far in 2025.

Investors can consider Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC, iShares U.S. Consumer Staples ETF IYK, Fidelity MSCI Consumer Staples Index ETF FSTA and Invesco S&P 500 Equal Weight Consumer Staples ETF RSPS.

With a one-month average trading volume of 13.94 million shares, XLP is the most liquid option, ideal for active trading strategies. However, implementing an active strategy in the current landscape may not be the most effective approach.

XLP has also gathered an asset base of $16.03 billion, the largest among the other options. Performance-wise, VDC outpaced other funds significantly, gaining 1.66% over the past month and 11.77% over the past year.

Regarding annual fees, FSTA is the cheapest option, charging 0.08%, which makes it more suitable for long-term investing.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research