Something unusual is happening in American equity markets. The S&P 500 keeps grinding higher, yet consumer discretionary stocks, the companies that sell things people want but don’t strictly need, are performing at their weakest level relative to the broader index in roughly 20 years.
The numbers behind the split
The S&P 500 Consumer Discretionary sector has been underperforming the broader S&P 500 since late 2025, and the trend has only accelerated into 2026. In February alone, consumer discretionary stocks posted a decline of approximately 5%, even as the S&P 500 held positive during certain stretches of the same period.
As of mid-May, the sector index has been trading near the 1,950 level with modest daily fluctuations. That’s not a dramatic crash in absolute terms, but relative to a thriving broader market, the weakness is historically significant.
Amazon and Tesla alone make up about 38% of the consumer discretionary index’s major holdings. When two of the most closely watched companies on the planet can’t drag their sector upward, you know something structural is going on.
Why consumer stocks are struggling
The headwinds facing consumer discretionary companies include shifting tariff policies injecting uncertainty into supply chains and pricing, and persistent inflation continuing to erode purchasing power, especially for goods that sit in the “nice to have” category.
A softening job market has hit lower-income households harder than wealthier ones, creating a bifurcated consumer economy. Affluent shoppers, buoyed by asset gains from real estate and equities, have kept spending. Everyone else has been tightening their belts.
Choppy consumer conditions and persistent policy uncertainty have made it difficult for fund managers to build conviction in the sector.
AI is eating consumer discretionary’s lunch
Investor enthusiasm has shifted dramatically toward companies tied to artificial intelligence infrastructure, applications, and services. That rotation helps explain why the S&P 500 can thrive even as an entire sector category hits multi-decade relative lows.
The S&P 500’s composition has shifted meaningfully toward technology and AI-driven names, which means the index can post gains even when a significant sector is underperforming.
What this means for investors
With Amazon and Tesla representing roughly 38% of the sector index, the performance of just two companies can swing the entire sector. If either stumbles on earnings or faces regulatory headwinds, the sector could deteriorate further. Conversely, a strong quarter from either name could create the illusion of a sector recovery that isn’t broadly shared.
The same macro forces pressuring consumer spending, inflation, employment uncertainty, and trade policy shifts, also influence risk appetite across asset classes. Money is chasing technology and AI narratives with enormous conviction right now, and that concentration creates fragility if the AI trade stumbles while there is no healthy consumer sector waiting to catch the fall.