US retail sales excluding autos rose by 0.7% month-on-month in April. Forecasts had pointed to a 0.6% increase.
The outturn was 0.1 percentage points above expectations. The release covers retail activity excluding motor vehicle sales.
This stronger-than-expected retail sales data for April suggests the consumer remains resilient. Consequently, the Federal Reserve may feel less pressure to cut interest rates in the near term. We are seeing the probability of a summer rate cut, as priced by Fed Funds futures, drop from over 50% last week to below 35% this morning.
For equity index traders, this creates a tricky ‘good news is bad news’ environment. While a strong consumer supports corporate earnings, the prospect of higher-for-longer interest rates puts pressure on valuations. Looking back, we saw a similar dynamic throughout much of 2025, where robust economic reports often led to pullbacks in the S&P 500 as rate expectations were reset higher.
This report disrupts the recent narrative of a gently cooling economy, likely increasing market uncertainty over the next few weeks. The CBOE Volatility Index (VIX), which has been hovering near recent lows around 14, could see a significant bid. We should consider buying near-term call options on the VIX to hedge against a potential repricing of risk.
On a more granular level, the strength is concentrated in consumer spending. We might consider bullish positions in consumer discretionary ETFs, perhaps using call spreads to define risk in case the broader market sells off. Recent online search trend data for travel and luxury goods has shown a 5% month-over-month increase, supporting the idea that this spending has momentum.
