The first rate hike in three years is in the books. The Fed is officially taking direct steps to slow inflation.

Meanwhile, the equity market’s worst-performing sector this year has already been pricing in a slowdown. Anyone caught off-guard by the recent consensus around a rate hike clearly hasn’t been paying attention to consumer discretionary stocks.

Prior to the Fed decision, the S&P 500 Consumer Discretionary sector was down 5% year to date, badly lagging the benchmark’s 11% gain. And according to historical research done by Goldman Sachs, the group is due for more pain, based on past reactions to higher rates. It fell another 0.7% on Wednesday.

It makes sense when you consider the current backdrop. Higher mortgage rates and increased auto-loan and credit-card costs can leave households with less of a cushion for non-urgent purchases.

But the group can’t be painted with a broad brush. Its weakness hasn’t been universal: Best Buy and Garmin are each up more than 35% year to date, with eBay and Ross Stores right behind. Different companies represent different economic dynamics that all feed into the performance of the unloved consumer discretionary sector.

Let’s break the group’s low-performing companies into three categories, with each reflecting a different way higher rates can pressure discretionary spending:

The big-ticket test: Lowe’s

YTD stock return: -20%

Lowe’s offers the most direct link between higher rates and consumer spending. Large home-improvement projects often depend on a homeowner’s willingness to borrow money or tap home equity. Higher borrowing costs can make those decisions easier to put off.

This isn’t to say that the home-improvement space is down for the count. Repairs still need to be made to existing homes, and Lowe’s has experience weathering past housing slowdowns.

But in the age of AI, a stable, rate-sensitive business may not offer the kind of growth story that investors are hungry for.

The premium test: Lululemon and Nike

YTD stock return: -54% for LULU, -44% for NKE

This is a different type of consumer calculation. Shoppers buying from these two companies don’t need loans, but they’re still paying extra for products that may be trendy and high-quality — yet they can ultimately live without.

Retailers like this can feel the pinch early when consumers start to pull back. They might still spend, but they’re more likely to trade down to a lower-cost competitor.

Of course, both companies have firm-specific issues of their own. Both are in the middle of turnaround projects following prolonged periods of underperformance. Their share prices have been under pressure as investors weigh rising competition and cloudy growth outlooks.

The value test: McDonald’s

YTD stock return: -19%

Compared to the companies above, McDonald’s is in a unique position. It can be a final destination for bargain-seekers. In theory, it should benefit as diners shift away from more expensive restaurant options.

But its performance still offers valuable consumer insight. If traffic begins to slow, that may signal that consumers are cutting back on spending entirely, rather than simply reallocating it in a more cost-efficient way. If there’s noticeable weakness in smaller, everyday purchases, then it might really be time to worry.

Of course, consumer discretionary doesn’t speak for the economy as a whole. Growth in other areas can offset one industry’s struggles. But it can nonetheless offer some helpful hints about the direction of the US consumer.