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Will ETFs Suffer as US Consumer Confidence Drops in February?

·4 min read

Rising inflation levels continue to take a toll on consumer confidence despite the recoveries in the labor market and the U.S. economy from the pandemic-led slowdown. The Conference Board's measure of consumer confidence index stands at 110.5 in February 2022 (the lowest since last September), lagging 111.1 in January. However, February’s reading surpassed the consensus estimate of 110.0, per a Reuters poll. The metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.

The Present Situation Index, which gauges consumer views on current business and labor market conditions, surged to 145.1 in February from 144.5 last month. The Expectations Index, which measures consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, however, decreased to 87.5 from 88.8.

The disappointing consumer confidence reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that can feel the impact are The Consumer Discretionary Select Sector SPDR Fund (XLY), Vanguard Consumer Discretionary ETF (VCR), First Trust Consumer Discretionary AlphaDEX Fund (FXD) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS).

Commenting on the data, Lynn Franco, senior director of Economic Indicators at The Conference Board, has reportedly said, "Consumer confidence was down slightly for a second consecutive month in February. The Present Situation Index improved a touch, suggesting the economy continued to expand in Q1 but did not gain momentum. Expectations about short-term growth prospects weakened further, pointing to a likely moderation in growth over the first half of 2022. Meanwhile, the proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all fell.”

Also, a decline in the proportion of consumers eyeing to buy homes, automobiles, and major appliances besides going on a vacation over the next six months has been observed for a while.

The latest disappointing preliminary consumer sentiment readings for early February that have plunged to the bottom in more than a decade highlight the same. The University of Michigan’s preliminary consumer sentiment dropped to 61.7 in early February from a final reading of 67.2 last month. The metric, which witnessed the lowest level since October 2011, came against the market forecast of a slight rise to 67.5, per the Reuters survey on economists.

ETFs That Might Suffer

Here we discuss in detail the four most popular funds that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund XLY

The Consumer Discretionary Select Sector SPDR Fund is the largest and the most popular product in the consumer discretionary space, with AUM of $19.48 billion. XLY tracks the Consumer Discretionary Select Sector Index.

The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.10%. XLY currently carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook. Also, the same trades in a three-month average volume of 10 million shares (read: Inflation Fear Overblown? 4 Retail Sector ETFs & Stocks Look Stout).

Vanguard Consumer Discretionary ETF VCR

Vanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.

Vanguard Consumer Discretionary ETF has an AUM of $6.01 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #2 at present, with a Medium-risk outlook. Also, VCR trades in a three-month average volume of about 172,000 shares (read: ETFs to Buy on Amazon's Big Q4 Earnings Beat).

First Trust Consumer Discretionary AlphaDEX Fund FXD

First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.

First Trust Consumer Discretionary AlphaDEX Fund has an AUM of $1.65 billion. FXD charges 0.61% of annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, FXD trades in a three-month average volume of about 215,000 shares.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.

Fidelity MSCI Consumer Discretionary Index ETF amassed $1.52 billion in its asset base. FDIS charges 8 basis points as annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook. FDIS trades in a three-month average volume of about 225,000 shares (read: US Consumer Sentiment Slips in February: Will ETFs Suffer?).


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