14.08.2026 - Surprising (?) Consumer Weakness
US Retail Sales Post a Surprisingly Sharp Decline
US retail sales fell 0.6% month-on-month in July, sharply missing expectations for a 0.1% increase. In June, sales had still risen by 0.2%.
Several factors contributed to the decline. Generous tax refunds that supported consumption during the second quarter have largely been exhausted. In addition, Amazon brought forward its Prime Day discount event from July to June, boosting the previous month's figures. Lower gasoline prices also reduced revenues at gas stations, while auto sales weakened.
However, the weakness goes beyond these temporary effects.
Core retail sales, which exclude volatile categories such as automobiles and gasoline and are an important input into GDP calculations, fell 0.4% in July.
This matters because consumer spending remains the backbone of the US economy, accounting for more than two-thirds of economic output.
Markets: continue to shake off almost any bad news.
Equities: US markets trading positive while Europeans are lagging
Bonds: yields moving higher - US 10y yield above 4.66%, Japan 10y yield 2.88%
Commodities: Oil prices slightly positive, WTI around USD 82/barrel and Brent around USD 88/barrel
Precious metals prices up, gold above USD 4’385/oz, silver trades above USD 65/oz
Currencies: US dollar clearly lower, Japanese Yen weakens, USDJPY 159
Cryptos: continue lower - Bitcoin below USD 63k
Volatility: The VIX index remains around 14.5 (good opportunity for hedging)
My View: Surprising consumer weakness? Not to me.
I have highlighted for months that the consumer is one of the weak spots of the US economy.
Many economists still expect the weakness to prove temporary, arguing that rising equity markets have increased household wealth and could continue to support spending. In particular, higher-income and older households may increasingly use some of their accumulated wealth gains to finance consumption.
This is particularly important in the United States, where consumer spending represents more than two-thirds of GDP. If the consumer weakens materially, it becomes increasingly difficult for the broader economy to remain unaffected.
The argument that the stock market rally will compensate for weaker underlying consumer fundamentals is, in my view, too optimistic.
The average US consumer does not have a sufficiently large direct exposure to equities to translate rising stock prices into materially stronger consumption. Much of household equity exposure is concentrated among wealthier households or held indirectly through retirement accounts. Meanwhile, many consumers continue to face elevated living costs, expensive financing conditions and increasing pressure on disposable income.
Therefore, I expect consumer weakness to persist and potentially deepen. A view that remains more cautious and that does not meet the current market consensus.
And this brings us back to markets. How far can this rally go? Endless?
FOMO is probably the best description of the current environment. Investors increasingly appear afraid of missing further upside rather than focused on whether current valuations adequately compensate for the risks.
But FOMO is rarely a sustainable investment strategy. Historically, it tends to become most powerful during the later stages of a momentum cycle.
Markets currently appear to be pricing an almost perfect scenario: resilient growth, contained inflation, supportive monetary policy, strong corporate earnings and limited geopolitical escalation.
Nothing seems to be priced in for things going wrong.
That creates an increasingly asymmetric risk/reward profile. When expectations are this high and volatility this low, it does not necessarily take a major crisis to trigger a correction.
Sometimes, one single negative headline is enough.
With the VIX around 14.5, complacency remains elevated. In my view, this continues to offer an attractive opportunity to hedge portfolios before volatility returns. After the spike it will be too late.
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