Insights 
VT 
The Atlanta Federal Reserve’s GDPNow model projects a slight decline in second-quarter growth for 2025, adjusting from 2.6% to 2.4% as of 17 July. This revision follows recent data releases by the US Census Bureau, the US Bureau of Labor Statistics, and the Federal Reserve Board of Governors.
Second-quarter projections for real personal consumption expenditures growth have fallen from 1.6% to 1.5%. This reflects updated economic conditions impacting consumer spending. The subsequent update for GDPNow is scheduled for release on 18 July.
Slowdown In Consumer Spending
We are observing the recent dip in the Q2 growth forecast to 2.4%, which is being driven by a notable slowdown in consumer spending. This data suggests the economic engine is beginning to cool more than previously thought. This trend should be the primary focus of our strategy in the coming weeks.
This view is reinforced by recent government statistics showing consumer strain. For example, retail sales in May rose a lackluster 0.1%, falling short of expectations and indicating households are tightening their budgets amid persistent inflation. We see this as concrete evidence supporting the revised, lower growth nowcast.
Slowing economic activity significantly increases the probability of a Federal Reserve policy shift. Based on the CME FedWatch Tool, the market is now pricing in over a 60% chance of an interest rate cut by the September meeting. We should anticipate a more dovish stance from the central bank, which will directly impact asset prices.
Strategies For Market Conditions
Given the potential for increased market chop, we believe volatility is currently mispriced. With the CBOE Volatility Index (VIX) trading near a low of 13, buying portfolio protection is unusually cheap. It is an opportune time to purchase put options on broad market indices to hedge against a potential downturn.
We also anticipate a clear rotation away from economically sensitive sectors. Historically, slowing growth cycles have seen defensive stocks in utilities and consumer staples outperform cyclical areas like industrials and consumer discretionary. Traders could look at selling call spreads on cyclical ETFs to capitalize on a belief that their upside is now capped.
