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ETFs That Can Ride High on Improving Consumer Confidence

·5 min read

The latest report on June’s U.S. consumer confidence shows more-than-expected improvement, largely due to the reopening of the economy and easing quarantine restrictions. The Conference Board's measure of consumer confidence index stands at 98.1, comparing favorably with May’s reading of 85.9, per a CNBC article. Moreover, June’s reading surpassed the consensus estimate of 91, per a Dow Jones’ poll.

The Present Situation Index, which gauges consumer views on current market conditions, rose to 86.2 from 68.4, per a CNBC article. Meanwhile, the Expectations Index, which is a measure of consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, rose from 97.6 in the previous month to 106.0 in June, per a Reuters’ article. It seems that the improvement in the expectations measure was largely due to reopening of several U.S. states. However, it is being believed that given the uncertainty surrounding the coronavirus pandemic, consumer spending might not rise rapidly in the near term at least. 

Commenting on the consumer confidence data, Lynn Franco, senior director of economic indicators at The Conference Board, said that “the re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions”, per a CNBC article.

Coronavirus & the U.S. Economy

The second half of 2020 is expected to keep facing the brunt of the coronavirus pandemic as the second wave of the outbreak is gathering steam. In the current scenario, the rising online shopping trend is slowly becoming the “new normal.”

Going on, even as the U.S. economy is reopening in phases and social-distancing restrictions are being eased, people are trying to minimize human-to-human contact. It’s largely because the pandemic has resulted in some changes in the lifestyle and preferences of Americans. Most of the surveys have found that people are more interested in online shopping rather than visiting a brick-and-mortar store for their purchases of essential food items and supplies now. However, considering the surging number of coronavirus cases, some states have started to pause the reopening process in the United States. Notably, Texas Governor Greg Abbott has announced holding back of reopening plans.

Meanwhile, some encouraging data has been flowing in as well. Retail sales in the United States surged 17.7% sequentially in May, breezing past the forecast of an 8% jump. This marked the highest uptick on record in retail sales as the coronavirus-led lockdown eased. May’s retail sales figure topped the record 6.7% jump in October 2001, a month after the 9/11 terrorist attack and easily surpassed analysts’ expectations of an 8.5% increase. Meanwhile, April’s plunge in retail sales was revised to be a little more moderate than previously reported (-14.7% versus -16.4%).

Along with encouraging retail sales data, the recent update on U.S. manufacturing output also looks pleasing. Per the Federal Reserve’s recently-released data, the industrial production, including output at factories, mines and utilities, rose 1.4% month over month, reflecting the highest monthly gain since the beginning of 2020.

ETFs That Might Shine

The strengthening consumer confidence can help the consumer discretionary sector, which attracts a major portion of consumer spending. Below, we have highlighted the four most popular ones that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and most popular product in the consumer discretionary space, with AUM of $13.09 billion. It tracks the Consumer Discretionary Select Sector Index, holding 61 securities in its basket. The fund charges 13 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: What's in Store for Consumer Discretionary ETFs as Virus Spreads?).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 296 stocks in its basket. VCR charges investors 10 bps in annual fees. The product has managed $3.07 billion in its asset base and carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Will ETFs Gain as U.S. Consumer Sentiment Improves in June?).

First Trust Consumer Discretionary AlphaDEX Fund FXD

This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index. This approach results in a basket of 123 stocks. FXD has AUM of $843.9 million. It charges 64 bps in annual fees and has a Zacks ETF Rank #3, with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 283 stocks in its basket. The product has amassed $773.1 million in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: Missed the Big Five Tech Rally? Buy the Dip With These ETFs).

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Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
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