Due to multi-decade high inflation, the Fed's aggressive monetary policy stance, and the Ukraine-Russia war, the stock market has been in correction territory of late. The consumer price index climbed 8.3% in April, surpassing the 8.1% estimate. These factors, combined with rising energy prices, negative GDP in the first quarter, and aggravated supply chain disruptions due to extended COVID-19 lockdowns in China, could push the U.S. economy into a recession.
When market sentiments are bearish, discretionary spending is the first thing consumers cut. Since the economy's odds of witnessing a recession have increased, cyclical stocks could be hard hit. Many companies in the consumer discretionary sector suffered significant losses in the first quarter and lowered their year-end projections. The bearish sentiment surrounding the sector is evident in the SPDR Consumer Discretionary Select Sector ETF's (XLY) 17.4% decline over the past month.
