In June 2025, US advance wholesale inventories increased by 0.2%, compared to a previous decrease of 0.3%. This reflects a change in inventory levels within the wholesale sector for that month.
Retail inventories, excluding automobiles, remained unchanged, showing a 0.0% movement as opposed to the revised 0.1% rise from the previous 0.2%. The adjustments in these figures indicate trends in stock levels and demand.
Slow Signals Of The Economy
We are viewing the June inventory data as a quiet signal of a slowing economy. The small rise in wholesale inventories against flat retail stock suggests businesses may be getting caught with merchandise as consumer demand cools. This mismatch indicates that companies might need to reduce future orders.
This observation is supported by other recent economic reports. The latest advance estimate for Q2 GDP showed annualized growth slowing to 1.7%, and the most recent ISM Manufacturing PMI reading for July dipped to 49.8, indicating a slight contraction in the sector. These figures paint a picture of an economy that is losing momentum heading into the third quarter.
Given this backdrop, we believe market volatility is currently underpriced, with the VIX trading in a contained range around 15. The placid market reaction to these accumulating warning signs presents an opportunity. We see value in buying longer-dated volatility, such as VIX futures for September or October delivery, before a potential repricing of risk.
Equity Portfolio Management
For traders managing equity portfolios, we suggest implementing downside protection over the next few weeks. Purchasing out-of-the-money put spreads on the S&P 500 can be a cost-effective way to hedge against a potential 5-10% market correction. This strategy allows for participation in further upside but caps losses in a downturn.
We are also looking closely at the consumer discretionary sector, which is particularly sensitive to the trends hinted at by the retail inventory data. The flat inventory levels, especially ex-autos, are a direct reflection of retailer caution on consumer spending. Establishing bearish positions on select retail ETFs could provide a more targeted exposure to this theme.
