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Can the Best Sector & Its ETFs of July Thrive in August Too?

Sanghamitra Saha

The consumer sector looks to be on the mend. Visa's total U.S. payments’ volume returned to positive annual growth in June and from July 1-21 thanks to strong positive growth from debit and card-not-present (CNP) payment volumes, as well as improving performances from its credit card and card-present businesses. However, their annual volume growth is still negative.

This gives a clear indication of recovering consumer spending as coronavirus-led lockdowns are easing. The pandemic has boosted demand for contactless payments. So, Visa’s numbers could be used as a guide to understand consumer behavior.

No wonder, the consumer discretionary sector was the S&P 500′s best-performing sector in July, gaining more than 7%. Online activities mainly drove the sector.

Will the Sector Rally in August?

Consumer spending is very important for U.S. economic wellbeing as it contributes 70% of U.S. GDP.  The Present Situation Index of the consumer confidence, which gauges consumer views on current business and labor market conditions, rose to 94.2 in July from 86.7 in the previous month.

However, the Expectations Index, which is a measure of consumers’ short-term (for the next six months) outlook, declined from 106.1 in the previous month to 91.5 in July. This could be due to the expiration of the $600 unemployment benefits (under the CARES act) at the end of July. However, the government is mulling over unemployment benefits under the HEALS Act. Any positive update would be beneficial for consumer discretionary stocks and ETFs.

Consumers’ improved sentiment is reflected in the homebuilding sector. Per the monthly National Association of Home Builders (“NAHB”)/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly built, single-family homes surged to 72 points in July from 58 in June, 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading to rise up to 60 (read: ETFs to Gain as Homebuilder Confidence Rally Continues in July).

Retail sales are also returning to the pre-COVID levels. This underscores pent-up demand in the economy. If the HEALS Act is released to everyone’s satisfaction, we expect consumer discretionary stocks to continue bouncing in August. Cheap oil and low rates are added benefits for the sector. The hope for vaccine is also acting as a tailwind (read: Retail Sales Returning to Pre-COVID 19 Level: Best ETF Areas).

However, like many analysts we too believe that the pandemic probably has changed the dynamics of buying forever. People are now getting accustomed with online activity. The ease of this buying mode will thrive in the post-pandemic period.

ETFs in Focus

Against this backdrop, below we highlight a few consumer discretionary ETFs that have been gaining form the start of August. These ETFs have added the most in the past week.

Amplify Online Retail ETF IBUY – Up 11.68%

ProShares Online Retail ETF ONLN – Up 11.63%

Invesco DWA Consumer Cyclicals Momentum ETF PEZ – Up 10.30%

Amplify International Online Retail ETF XBUY – Up 5.98%

SPDR S&P Retail ETF XRT – Up 5.35%

Invesco S&P SmallCap Consumer Discretionary ETF PSCD – Up 4.29%

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SPDR SP Retail ETF (XRT): ETF Research Reports
Amplify Online Retail ETF (IBUY): ETF Research Reports
Invesco SP SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports
Invesco DWA Consumer Cyclicals Momentum ETF (PEZ): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports
Amplify International Online Retail ETF (XBUY): ETF Research Reports
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Zacks Investment Research
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