Americans are still spending. Why aren’t consumer discretionary stocks keeping up?

Americans kept spending in 2026 despite higher prices. Inflation-adjusted consumer spending grew at an annualized rate of 3.8% in the third quarter, even as households contended with higher prices and borrowing costs. One might expect resilient consumer spending to lift stocks tied to the consumer. Instead, consumer discretionary stocks have lagged: The sector is up roughly 4% this year, while the S&P 500 is up 10%.

The contrast is sharper when you consider consumer staples stocks, which are up about 17%. Staples companies generally sell everyday necessities; meanwhile, discretionary companies tend to be more exposed to purchases that people can delay or scale back. That distinction helps explain why investors may see the two sectors differently when household budgets are under pressure.

But the difference in returns does not mean Americans have stopped making discretionary purchases. Spending has held up even as persistent inflation and higher borrowing costs have made the outlook tougher for some households and businesses.

Spending data shows what consumers have bought; stock prices reflect what investors expect companies to earn in the future. To understand why those stories have diverged, it can be helpful to first examine where Americans’ money is going.

Americans are still spending – but what are they buying?

Resilient spending isn’t just an inflation story. After adjusting for price increases, consumer spending grew at an annualized rate of 3.8% in both the second and the third quarters of 2026. Americans were buying more goods and services overall, not merely paying more for the same purchases.

Where that money went matters. Services – including restaurants, hotels and healthcare – drove much of the third-quarter spending growth. By contrast, spending on goods such as vehicles and furniture softened. The latter goods are often larger purchases that households can put off, especially when financing is expensive.

The latest monthly figures add another layer. In September, consumer spending rose 0.5% from August levels in dollar terms but was flat after adjusting for inflation. In other words, households spent more money that month without buying more overall. That doesn’t erase the quarter’s real growth, but it does show why a rising spending figure needs context.

The spending total also masks a “K-shaped” consumer economy: Higher-income households have continued to spend, while some lower- and middle-income shoppers are trading down or cutting back on discretionary purchases. That split can leave aggregate spending firm even as businesses face very different demand from different customers.

Softer demand for some goods doesn’t mean consumers have abandoned discretionary spending altogether. Travel and dining are discretionary purchases, too, and both have helped support spending.

The overall momentum in spending trends remains intact as we enter the winter holiday shopping season – a critical period for consumer companies. According to the National Retail Federation (NRF), retail sales in November and December have accounted for around 19% of the annual total over the past five years. NRF forecasts a 4.2% year-over-year increase in holiday sales in 2026.

Why strong consumer spending isn’t lifting consumer discretionary stocks

Strong consumer spending across the economy does not guarantee better profits for companies in the consumer discretionary sector. A business that relies on home projects, for example, will not necessarily benefit when households spend more on travel. What matters to each business is who its customers are, whether demand for its products holds up and whether it can turn sales into earnings.

Luxury demand shows how spending can diverge by customer and by region. LVMH reported that U.S. sales rose 5% in the third quarter, supported by continued demand from affluent shoppers. But its overall sales fell short of expectations amid weaker demand in China and as investors remained unconvinced about a broader luxury recovery. As of November 6, LVMH shares were down 40% for the year.

Uneven demand is only part of the story. Higher interest rates can also weigh on businesses whose customers finance large purchases. The Federal Reserve raised interest rates in September for the first time in three years, making borrowing more expensive for households. When financing costs more, people may wait to buy a vehicle, replace an appliance or start a home improvement project. Investors may worry about the companies that sell those goods and services before overall consumer spending slows.

Higher energy prices tied to the Middle East conflict have also raised freight and transportation costs for consumer companies. The Federal Reserve’s October Beige Book cited high diesel costs far more often than in its previous report, as businesses faced steeper expenses. Procter & Gamble, for example, said energy-related costs could reduce its fiscal 2027 profit by about $1.4 billion – even as consumer demand held up. That pressure can matter to share prices if investors expect higher costs to erode future profits.

Finally, higher bond yields can also make investors less willing to pay as much for companies’ expected future earnings. That makes the bar for consumer stocks higher at a time when investors are already questioning demand and margins. The issue isn’t whether Americans are spending; it’s whether discretionary companies can grow profits enough to meet the expectations built into their share prices.

Consumer staples stocks have outperformed discretionary stocks in 2026

That concern about future profits helps explain the split between the two consumer sectors. Consumer staples stocks are up about 17% this year, while discretionary stocks are up only 4%. Companies such as Coca-Cola and Procter & Gamble sell products households may buy regularly, for instance. Companies such as Lowe’s and Nike, by contrast, sell products in categories where households may be more able to delay or scale back purchases.

With inflation and borrowing costs putting pressure on households, investors may expect demand for everyday products to hold up more reliably. That expectation does not make staples companies immune to rising costs, however; nor does it mean consumers have stopped making discretionary purchases. Rather, it helps explain why investors may feel more confident about the future earnings of consumer staples companies.

Are investors still worried about the US consumer?

Investors may be looking beyond the strong third-quarter spending figure for signs of what might happen next. Inflation-adjusted spending was flat in September, suggesting that momentum may have slowed as the fourth quarter began. One month’s data does not establish a trend, but it gives investors reason to watch whether households keep spending at the same pace.

The personal saving rate adds to that concern. It fell to 3.8% in September, from 5.1% a year earlier. Households can sustain their purchases by saving less, but doing so leaves a smaller cushion if prices rise further or income weakens. And inflation and borrowing costs continue to make that trade-off harder, especially for people considering large purchases they would need to finance.

There is a case for resilience, too. Employment has helped support household spending, and demand has not weakened across every discretionary category. A lower saving rate is a warning sign about how long the current pace can last – not proof that Americans have stopped spending.

That is the distinction investors might be trying to make: The risk of a slowdown may be growing, but data has not yet shown a broad pullback in consumer spending.

The bottom line: Consumer spending and stock returns tell different stories

Americans can keep spending while consumer discretionary stocks lag. Spending is uneven across categories, higher costs can eat into company profits and share prices reflect what investors expect to happen next – not just what households are buying today.

The next spending report is worth reading alongside companies’ profit margins and earnings outlooks. Are Americans buying more, or simply paying more? Which purchases are holding up, and are businesses able to protect their profits? Consumer spending has proved resilient, but less savings, persistent inflation and costly borrowing leave open the question of how long that strength can last.

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