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ETFs to Buy as Americans' Confidence Nears 19-Year High

Sanghamitra Saha

Despite the ongoing trade tensions, Americans continue to be optimistic as evident from the 19-year high consumer confidence reading in August. The Conference Board said its consumer confidence index for August was 135.1, which surpassed economists’ estimate of 129.5 polled by Reuters. However, the latest reading dropped from a slightly upwardly revised 135.8 in July. The index was previously reported at 135.7 in July (read: Americans' Confidence at About 18-Year High: Bet on These ETFs).

The upbeat data was not that surprising as the latest Q2 GDP report also echoed the same enthusiasm among consumers. The labor market is steady, inflation is low and wages are rising. The survey’s present situation measure jumped from 170.9 in July to 177.2, the highest reading since November 2000. Consumers’ expectations, based on the short-term outlook for income, business and labor market conditions, dropped to 107.0 this month from 112.4 in July.

However, the Conference Board survey’s findings on consumer confidence contradict the University of Michigan's reading on consumer sentiment. Research by the latter showed that consumer sentiment had slipped to a seven-month low level of 92.1 in early August, falling shy of market consensus of 97.2.

“While other parts of the economy may show some weakening, consumers have remained confident and willing to spend,” said Lynn Franco, senior director of economic indicators at the Conference Board. “However, if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook,” as quoted on Bloomberg.

Investors should note that oil prices are not likely to shoot up this year given the global growth worries and a possible threat to demand. Savings at gas stations should also result in a fatter consumer wallet.

Latest data revealed that house price inflation is continuing to moderate. The S&P CoreLogic Case-Shiller house price index for 20 metro areas rose 2.1% from a year ago in June, marking the smallest rise since August 2012, after a 2.4% rise in May. This along with lower borrowing costs could provide some support to the housing market.

Against this backdrop, we highlight a few ETFs that could gain in the coming days.

First Trust NASDAQ Retail ETF (FTXD)

The underlying Nasdaq US Smart Retail Index is a modified factor weighted index, designed to provide exposure to U.S. companies within the retail industry. The fund charges 60 bps in fees and has a Zacks ETF Rank #2 (Buy).

iShares U.S. Home Construction ETF ITB

Low mortgage rates and still-upbeat consumer confidence might drive demand and sales for homes, suggesting further run in this already-surging ETF. The fund is up 33.8% this year (read: Housing ETFs & Stocks to Buy on Likely September Rate Cut).

iShares Russell 2000 Growth ETF (IWO)

A moderate improvement in American consumers’ sentiments as well as an accommodative monetary policy bode well for growth stocks across the small-cap spectrum. Small-cap stocks’ outperformance is associated with the U.S. economy’s wellbeing. The fund has a Zacks Rank #2.

VanEck Vectors Retail ETF (RTH)

The underlying MVIS US Listed Retail 25 Index tracks the overall performance of companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. The Zacks Rank #2 fund charges 35 bps in fees (read: Don't Fear Yield Curve Inversion, Play These Top ETFs Instead).

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iShares U.S. Home Construction ETF (ITB): ETF Research Reports
VanEck Vectors Retail ETF (RTH): ETF Research Reports
First Trust NASDAQ Retail ETF (FTXD): ETF Research Reports
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
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