The Consumer Discretionary Select Sector SPDR Fund ( XLY ) pulled back Thursday, falling 3.9% to $187.90 during afternoon trading as investors took profits following a dramatic surge Wednesday.

What To Know: The ETF, which tracks leading U.S. consumer discretionary stocks, had soared over 11% on Wednesday—its strongest single-day performance since 2020—driven by President Donald Trump's announcement of a 90-day pause on additional tariffs for non-retaliating countries.

XLY's top holdings include Amazon.com Inc ( AMZN ) , Home Depot Inc ( HD ) and McDonald's . These companies are highly sensitive to consumer spending trends, input costs and trade policy—all of which were front and center in this week's macroeconomic shifts.

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What Else: Despite the marked pullback, Thursday's economic data further supported the bullish backdrop. The March Consumer Price Index revealed that inflation had cooled more than expected.

Headline inflation fell to 2.4% year-over-year—its lowest reading since September—while core inflation eased to 2.8%, also below expectations. The monthly CPI even posted a rare 0.1% decline, reinforcing optimism that consumer price pressures are subsiding.

For discretionary names, lower inflation translates to stronger real spending power and potentially higher margins—particularly important for retailers and automakers navigating tight pricing environments. However, the sector's outsized rally on Wednesday potentially left it, as well as the broader market, vulnerable to short-term profit-taking.

Thursday's selling also likely reflects a natural breather after an aggressive move higher, as markets digest whether the tariff pause and inflation surprise mark a turning point—or just temporary relief—for consumer-focused stocks.

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According to data from Benzinga Pro, XLY has a 52-week high of $240.28 and a 52-week low of $166.60.