The October PCE Data Release
Yesterday, November 26, 2025, the Bureau of Economic Analysis released the October Personal Consumption Expenditures (PCE) Price Index. The data confirmed a 2.4 percent year over year increase in the headline index. While this aligns with Federal Reserve targets, the underlying core PCE, excluding food and energy, remains sticky at 2.7 percent. This divergence explains the current market friction. Traders entering Black Friday are not looking at holiday cheer, they are looking at the 4.18 percent yield on the 10 Year Treasury Note. The reality of higher for longer interest rates has finally collided with retail valuation models. High frequency data from the first 24 hours of holiday shopping suggests a shift from discretionary spending to essential goods. This transition is visible in the Walmart (WMT) stock price action, which has outperformed the broader retail sector by 12 percent over the last 90 days.
Retailer Margin Compression and Inventory Bloat
The spreadsheet does not lie. For the third quarter of 2025, Target (TGT) reported an operating margin of 5.2 percent. This is a significant drop from the 6.1 percent historical average for the same period. The mechanism of this decline is simple. Inventory bloat. Retailers over ordered high margin electronics and home goods, expecting a 2024 style spending spree. Instead, consumers are prioritizing household staples. This has forced massive discounting strategies that erode bottom line profitability. When a retailer offers a 40 percent discount on a television, they are often selling at or below the cost of acquisition plus logistics. This is a liquidation event disguised as a sale. The following table illustrates the year to date performance of the primary retail tickers as of the market close on November 26, 2025.
| Ticker | YTD Return (%) | Operating Margin (Q3 2025) | Inventory Turnover Ratio |
|---|---|---|---|
| WMT | 22.4% | 4.8% | 8.4 |
| AMZN | 18.1% | 7.2% | 9.1 |
| TGT | -4.2% | 5.2% | 6.2 |
| HD | 2.1% | 13.5% | 4.1 |
| COST | 25.3% | 3.6% | 12.3 |
Retail Sector Performance Visualized
Credit Delinquencies and the Ghost of 2024
Consumer resilience has reached its mathematical limit. According to the latest Federal Reserve Bank of New York report, credit card delinquency rates for the 30 plus day category reached 3.4 percent in the third quarter of 2025. This is the highest level since 2011. The buy now pay later (BNPL) bubble is beginning to show cracks. On November 25, 2025, data indicated that over 18 percent of Black Friday online transactions were financed through deferred payment options. This is not sustainable growth. It is future demand being pulled forward to satisfy current quarterly earnings expectations. Traders should watch the Reuters financial wire for updates on the consumer discretionary sector, as any further tick up in default rates will trigger a sell off in the banking and retail sectors simultaneously.
The Options Market and Volatility Skew
The CBOE Volatility Index (VIX) is currently sitting at 14.20. This suggests a dangerous level of complacency. However, the volatility skew, the difference in cost between out of the money puts and calls, tells a different story. Institutional investors are paying a premium for downside protection. The current skew is at its steepest level since the August 2024 carry trade unwind. Professional money is hedging against a potential disappointment in holiday sales figures. If the Adobe Analytics report on Monday, December 1, shows anything less than a 5 percent increase in Cyber Monday spend, the S&P 500, currently at 6,042, will likely test the 5,850 support level. This is not a time for blind optimism. It is a time for delta neutral strategies. Straddles on the XRT (Retail ETF) are pricing in a 4.5 percent move in either direction over the next ten days.
Strategic Positioning for the December 17 Fed Meeting
The final catalyst for 2025 is the December 17 Federal Open Market Committee (FOMC) meeting. Current Fed Fund Futures are pricing in a 62 percent probability of a 25 basis point cut. However, if the Black Friday retail data comes in hotter than expected, it could fuel inflation concerns, forcing the Fed to hold rates steady. A hawkish hold would be catastrophic for the current equity valuations. Small cap stocks in the Russell 2000 are particularly vulnerable, as many of these companies require debt refinancing in early 2026. The next specific milestone to watch is January 28, 2026. This is the date of the first FOMC meeting of the new year. By then, we will have the full picture of the holiday retail season and the fourth quarter GDP estimates. Watch the 2.4 percent PCE floor. If inflation dips below this number, the Fed has room to move. If it stalls, the market will be forced to reprice the entire 2026 outlook based on a restrictive 4.50 percent terminal rate.
