U.S. Consumer Confidence Slumps to Decade Low: ETF Areas to Play

U.S. consumer confidence fell sharply in January, sinking to its lowest level since 2014 as worries about personal finances and the broader economy intensified, per Associated Press, as quoted on Yahoo Finance.

Confidence Index Craters

The Conference Board reported that its consumer confidence index plunged 9.7 points to 84.5 in January. All five components of the index deteriorated during the month. Consumers’ assessment of present economic conditions declined 9.9 points to 113.7.

Expectations Signal Recession Risk

Americans’ short-term expectations for income, business conditions and the job market slid 9.5 points to 65.1. That marks the 12th straight month below 80, a level often viewed as a potential recession warning, per AP News.

Inflation, Politics and Jobs Weigh on Sentiment

Survey respondents continued to cite inflation pressures, including higher gas and grocery prices. Other dampening factors included tariffs, trade, politics, jobs and health insurance. Consumers’ view on job availability has worsened in the month.

The economy added only 584,000 jobs in 2025, far below the more than 2 million added in 2024, making it the weakest year for jobs growth outside a recession since 2003, per Heather Long, chief economist at Navy Federal Credit Union, as quoted on Associated Press.

Economic Growth Continues Courtesy of Rich Americans

Despite softening confidence and hiring, the U.S. economy continues to expand. Strong consumer spending drove the fastest growth in two years between July and September, mainly helped by rich people’s spending.

About 59% of all consumer spending now comes from the top 20% of income earners, a near record high, according to a Moody's Analytics analysis, as quoted on Axios.Only 41% of consumer spending comes from the bottom 80% of income earners – a record low.

ETF Areas to Play Now

Against this backdrop, below we highlight a few exchange-traded fund (ETF) areas, if recessionary fears emerge and consumer confidence weakens further.

Defensive 

Historically, the consumer staples sector outperforms if confidence slumps, as staple goods are non-cyclical in nature. Utilities too fall in this category. Moreover, to support the power-hungry AI boom, utilities have received a leg up in today’s environment. Healthcare is also a recession-resilient sector.

State Street Consumer Staples Select Sector SPDR ETF XLP, State Street Health Care Select Sector SPDR ETF ETF XLV and State Street Utilities Select Sector SPDR ETF XLU are three notable ETFs in the defensive segment.

Quality

Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track record of stable or rising sales and earnings growth. These stocks thus hold up well during market swings. BetaShares S&P 500 Equal Weight ETF QUS and Invesco S&P 500 Quality ETF SPHQ are examples of such ETFs.

Pacer US Large Cap Cash Cows Growth Leaders ETF COWG could also be a winning option as cash flow offers safety in times of economic distress.

Dividend

Seeking shelter in high-income ETFs also makes sense. In a volatile market, dividend ETFs normally come to the rescue. The hunt for dividends in the equity market is always on, irrespective of how the market is behaving. Vanguard High Dividend Yield ETF VYM, which yields 2.36% annually, can be tapped in this respect.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research