Have you ever noticed how the moment the Federal Reserve finally hits the “easy money” button again, certain corners of the market suddenly wake up like they’ve been hibernating for years?
I have. And right now, with another quarter-point cut looking almost locked in for December, I can’t stop thinking about the consumer sector. Not the usual winners like Costco or Amazon, but the names that have been absolutely crushed in 2025 and are now trading at valuations we rarely see.
Why Consumer Stocks Love Lower Rates (And Always Have)
Let’s keep this simple. When the Fed cuts interest rates, two very powerful things happen for everyday shoppers:
- Borrowing gets cheaper → credit-card balances, auto loans, and mortgages all feel a little less painful.
- Confidence rises → people feel richer on paper and psychologically they’re more willing to open their wallets.
History backs this up in a big way. Looking at every Fed cutting cycle since the early 1990s, consumer discretionary stocks beat the S&P 500 by an average of 12% in the following 12 months. Consumer staples? They still manage to outperform by around 5-6%. Not shabby for a “defensive” sector.
This time feels a little different because of the long pause at high rates, the tariff noise, and the whole AI-fueled K-shaped economy thing. But the pattern still holds. Once the cutting cycle restarts, money flows back into the companies closest to the American consumer.
“Both Consumer Staples and Consumer Discretionary sectors are standout outperformers on a 6- and 12-month basis once the Fed cutting cycle starts, or in this case, has restarted.”
Evercore ISI strategy team
The Perfect Setup: Battered Prices + Policy Tailwinds
Here’s what really caught my eye. Analysts recently ran a screen across the entire Russell 3000 looking for consumer-facing names that check three very specific boxes:
- Negative returns year-to-date in 2025
- Trading below their 5-year average forward P/E
- Current net margins sitting below their 5-year average
In plain English? These are profitable companies have been left for dead, and their stocks are pricing in a permanent slowdown that probably isn’t coming.
Add in potential tax-cut stimulus next year and the possibility of some form of tariff relief making its way to consumers, and you’ve got what I’d call a pretty attractive risk/reward setup.
Three Names That Screamed “Buy Me” From The Screen
Let’s talk about the ones that jumped out the most.
1. Bath & Body Works – Down 55%, But The Candles Still Smell Great
Fifty-five percent. That’s not a typo. The stock has been absolutely torched this year as management guided lower amid “macro consumer pressures.” Translation: people tightened their belts on $30 candles and body lotion for a while.
But here’s the thing I love: the core business is still profitable, same-store sales are stabilizing, and the balance sheet is rock solid. At current levels the stock trades at roughly 9x forward earnings — a valuation we haven’t seen since the COVID lows.
Lower rates mean lower interest expense on their debt and, more importantly, more disposable income in the pockets of their exact target customer — middle-class women who adore that White Barn three-wick life. I’m not saying tomorrow they print new highs, but a move back toward the mid-40s over the next 12 months feels very realistic to me.
2. Under Armour – Yes, Really
I know, I know. Under Armour has been the poster child for “fallen angels” in athletic apparel. Down 41% this year while On Running and Hoka eat their lunch in the premium running segment.
But zoom out. New management is finally cleaning house, North American inventory is coming down, and the brand still has massive recognition. More importantly, a huge chunk of their sales come from outlet channels and team sports — areas that tend to be extremely rate-sensitive.
When families feel a little less squeezed, Little League sign-ups go up, and suddenly every kid needs new cleats. At under 8x forward earnings with net margins poised to expand again, this feels like one of those “hated turnaround” setups that can double if they simply execute decently.
3. Lululemon Athletica – The Premium Yoga Bet
Down 52% in 2025. That still feels surreal to type. The same company that was everyone’s darling in 2021-2023 now trades at the lowest forward P/E in its public history.
U.S. same-store sales have cooled, tariff fears spooked investors, and the novelty of $128 leggings wore off for a minute. Yet international growth is still accelerating, gross margins remain elite, and the brand loyalty is borderline cult-like.
Perhaps the most interesting part? Lulu’s average customer has a household income north of $100k — exactly the cohort that benefits first and most from lower borrowing costs and potential tax changes. If consumer confidence ticks up even modestly, those “We Made Too Much” sale racks get a lot quieter.
What About The Broader Consumer Trade?
Beyond these three, I’m keeping an eye on a basket approach. Think XRT (retail ETF) or individual names in home improvement, off-price retail, and even casual dining — anywhere the marginal dollar of consumer spending shows up first.
The key is patience. Rate cuts don’t flip sentiment overnight. But six to twelve months from now, when the data shows real disposable income growth again, many of today’s losers will be tomorrow’s leaders.
Risks? Of Course There Are Risks
Look, I’m not blindly pounding the table here. If inflation re-accelerates and the Fed has to pause or even reverse course, this whole thesis collapses. Same story if tariffs escalate dramatically and squeeze margins further.
But the probability-weighted scenario — another cut or two cuts, some fiscal stimulus, and a soft landing — feels heavily tilted in favor of the consumer comeback story.
Sometimes the best opportunities hide in the sectors everyone already wrote off. Right now, that sector has pumpkin spice candles, yoga pants, and basketball jerseys written all over it.
So while the Magnificent Seven catch their breath, I’m happily shopping in the bargain bin of consumer stocks. December’s rate cut might just be the holiday gift these names have been waiting for.
