Ulta Beauty’s rally vs CarMax’s crash — what this week’s S&P 500 movers reveal about investors

Why did Ulta Beauty (NASDAQ: ULTA) outperform the S&P 500 consumer cyclical sector this week despite market headwinds?

Ulta Beauty Inc. (NASDAQ: ULTA) delivered one of the sharpest gains in the S&P 500 consumer discretionary segment during the week ending September 26, climbing nearly 6 percent even as broader markets softened. The rally was largely triggered by Argus Research, which reaffirmed its bullish stance on the specialty retailer with a $570 price target. That institutional endorsement resonated with investors who see Ulta as a beneficiary of the resilience in beauty and personal care demand, a sector that continues to defy pressure from tighter household budgets.

The timing of Ulta’s rally was notable. The S&P 500 itself slipped by around 0.75 percent over the week, while the Consumer Discretionary Select Sector SPDR Fund shed only 0.20 percent. This relative resilience revealed the bifurcation within the consumer cyclical universe. Subsegments like cosmetics and specialty retail are increasingly being viewed as semi-defensive plays, while autos and durables are weighed down by interest rates and consumer caution.

Ulta’s loyalty ecosystem, supported by millions of engaged members, continues to underpin same-store sales growth. Analysts have highlighted that Ulta captures both premium beauty spend and mass-market demand, giving it a hedge against shifting consumer wallets. In an environment where consumers are trading down in some categories but holding firm in others, Ulta has positioned itself at the intersection of indulgence and necessity. That narrative has drawn institutional buying flows, which are crucial in setting short-term momentum for large-cap discretionary names.

Why did CarMax (NYSE: KMX) stock decline sharply while other consumer cyclical stocks showed resilience?

CarMax Inc. (NYSE: KMX) ended the week as one of the worst performers in the S&P 500, with its stock plunging more than 20 percent after disappointing quarterly results. The company reported weaker-than-expected retail unit sales, margin compression, and inventory headwinds that alarmed investors hoping for stability in the used-car market. The results reignited concerns about affordability and the drag of higher interest rates on auto retail.

The used-car business is particularly sensitive to financing conditions. CarMax has acknowledged that elevated borrowing costs are making it harder for customers to qualify for auto loans, while vehicle depreciation is eroding resale values. Gross profit per unit declined, and higher selling, general, and administrative expenses further pressured earnings. Analysts responded by cutting price targets and revising down EPS forecasts for fiscal 2025.

Institutional sentiment has shifted accordingly. Hedge funds and mutual funds that had increased exposure to auto names earlier in the year are now reducing positions, rotating into more resilient categories. Retail investors, who often anchor momentum in cyclical stocks, have also shown caution, as CarMax’s guidance failed to provide a clear roadmap for improvement. Both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) have leaned toward reallocating capital into discretionary subsegments such as beauty, leisure, and travel, leaving auto names exposed to persistent selling pressure.

How does the performance divergence between Ulta Beauty and CarMax reflect consumer spending patterns in 2025?

The gap between Ulta Beauty’s rally and CarMax’s decline mirrors how American consumers are prioritizing spending in 2025. Small indulgences, often referred to in economic commentary as the “lipstick effect,” remain resilient. Consumers continue to spend on beauty, skincare, and personal care products because they deliver affordable luxury and immediate gratification without straining household budgets. Ulta has capitalized on this dynamic, offering broad assortments that span both premium and entry-level products.

In contrast, high-ticket purchases like cars require financing and carry longer-term commitments, making them vulnerable to interest rate environments and consumer confidence cycles. The used-car market, which surged during the pandemic due to supply shortages in new vehicles, has since normalized. That normalization is now colliding with tight lending standards, leading to slower turnover and compressed margins for players such as CarMax.

Historically, discretionary categories that fall under affordable luxury tend to outperform in economic slowdowns, while durable goods and autos lag. Ulta’s performance confirms this pattern. CarMax’s sharp sell-off is another data point showing that rate-sensitive consumer purchases remain under significant strain.

What are analysts and investors signaling about buy, sell, and hold strategies for Ulta Beauty and CarMax stocks?

Analyst consensus around Ulta Beauty has tilted toward “Buy.” Forecasts for earnings per share growth in fiscal 2025 remain anchored in the mid-single digits, supported by expectations for operating margin improvement. Ulta’s ability to scale its omnichannel offering, particularly by integrating digital platforms with in-store experiences, is viewed as a structural advantage. Institutions have been net buyers of the stock in recent weeks, suggesting confidence in its near-term trajectory.

CarMax, meanwhile, is facing downgraded sentiment. Several analysts have shifted to “Hold” or “Sell” ratings following the earnings miss. Price target reductions reflect uncertainty around retail unit recovery and inventory management. Market chatter suggests that institutions are unlikely to return in scale until CarMax demonstrates both cost discipline and stabilization in demand. EPS forecasts have already been revised lower, reinforcing the cautious outlook.

From an institutional flow perspective, foreign funds are directing allocations toward consumer brands with visible cash flow stability, while domestic institutions are trimming exposure to autos. The divergence in flows highlights how investors are segmenting the consumer cyclical space rather than treating it as a monolith.

How does this week’s performance compare with historical trends in consumer discretionary stocks?

The consumer discretionary sector has historically been a leader during recoveries but tends to fragment during late-cycle environments. Over the past decade, companies in e-commerce, specialty retail, and luxury apparel often commanded valuation premiums, while housing and autos showed cyclical volatility.

The current cycle is more uneven. Since 2022, higher interest rates have limited consumer borrowing power, with housing and autos being the most affected. Categories like travel, beauty, and leisure have retained resilience because they align with discretionary spending that is aspirational yet manageable. Ulta Beauty’s trajectory fits into this historical context as a continuation of the premium retail resilience theme. CarMax, in contrast, highlights the vulnerability of auto retailers in periods of credit tightening, a dynamic visible in multiple past cycles.

This week’s stark divergence amplifies the pattern: investors reward brands with strong consumer loyalty ecosystems and penalize those dependent on external credit conditions.

What should investors expect for Ulta Beauty, CarMax, and the broader consumer cyclical sector in the months ahead?

Looking ahead, Ulta Beauty is expected to benefit from holiday season demand, which traditionally boosts sales in beauty and personal care categories. Analysts see potential for steady top-line growth through fiscal Q4, supported by loyalty program promotions and new product launches. However, the company’s ability to sustain margin resilience will depend on input cost control and continued strength in consumer discretionary spending.

CarMax’s outlook is more challenging. Unless auto lending conditions ease or the company introduces new strategies to re-align inventory with consumer demand, investor confidence will remain low. Analysts argue that CarMax must aggressively manage expenses and improve unit economics to recover sentiment. The market will be closely watching whether management adjusts guidance in the next earnings cycle to reflect a more realistic trajectory.

For the broader consumer cyclical sector, selective rotation is likely to intensify. Institutions are expected to overweight specialty retail, leisure, and travel while underweighting autos and durables. This dynamic suggests that while the sector may appear stable in aggregate, the dispersion between winners and losers will widen further.

Final outlook on Ulta Beauty’s momentum, CarMax’s decline, and selective investor rotation in consumer cyclicals

The week’s performance confirmed that consumer cyclical investing in 2025 is less about broad macro calls and more about identifying subsegments that align with evolving consumer behavior. Ulta Beauty’s surge exemplifies the resilience of affordable luxury categories, while CarMax’s fall underscores the vulnerability of credit-sensitive, high-ticket discretionary spending.

Institutional flows, analyst revisions, and investor sentiment all point to a more selective approach in the months ahead. For investors, the lesson is that the consumer discretionary sector is not moving in unison but is instead fragmenting sharply between resilient winners and vulnerable laggards. As the holiday quarter approaches, Ulta’s momentum and CarMax’s challenges are set to remain defining narratives for the sector, shaping both sentiment and capital flows across the S&P 500.