ETFs to Win on Strong US Consumer Confidence Levels in July
Consumer confidence in the United States seems impressive as it stays at its highest level since February 2020. The Conference Board's measure of consumer confidence index stands at 129.1 in July, comparing favorably with June’s reading of 128.9. Moreover, July’s reading beat the consensus estimate of the index declining to 123.9, per a Reuters’ poll. However, the metric continues to be below the pre-pandemic level of 132.6 in February 2020.
The Present Situation Index, which gauges consumer views on current business and labor market conditions, rose to 160.3 in July from 159.6 in June. 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, remained almost flat at 108.4.
Moreover, the survey’s labor market differential, calculated from data on respondents’ views on whether sufficient jobs are available or difficult to get, rose to a reading of 44.4 in July (the highest level since 2000) from 44.2 last month, per a Reuters article.
In this regard, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in third quarter is off to a strong start. Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve,” per a Reuters article.
Current U.S. Economic Scenario
Investors seem worried about the sustainability of the U.S. economic recovery from the pandemic-led slump and the delta variant threat. The virus variant remains a serious concern as the number of cases is rising in the United States. The new cases arising from the delta variant are being mostly observed among the unvaccinated population. Further, after an impressive first half of the ongoing year, market analysts are anxious about Wall Street’s performance for the rest of 2021, according to a CNBC article.
Moreover, annual inflation rate in the United States accelerated to 5.4% year over year in June 2021 from 5% in May, hitting a fresh high since August 2008, and well above forecasts of 4.9%. The latest uptick in inflation was the largest 12-month increase.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9% sequentially in June on a seasonally adjusted basis after rising 0.6% in May, the U.S. Bureau of Labor Statistics reported. This marked the largest one-month change since June 2008 when the index had risen 1.0%.
Meanwhile, it is worth noting here that the second-quarter earnings season has already seen better-than-expected results, stimulating the rally in stock markets. Per FactSet data, 88% of S&P 500 companies have reported an EPS surprise (per a CNBC article). In fact, at the end of the reporting season, if the figure remains at 88%, it will stand out as the highest percentage since FactSet started tracking the metric in 2008.
Rapid distribution of coronavirus vaccines by multiple developers, the Fed’s continued support with easy monetary policies, fiscal stimulus support and reopening of non-essential business are strengthening hopes of rapid recovery from the coronavirus-led slump.
Wall Street also cheered President Joe Biden’s announcement of the White House striking an infrastructure deal with a bipartisan group of senators. According to the White House, the infrastructure deal will include $579 billion in new spending.
Strengthening optimism, coronavirus vaccines have been found effective against the delta variant. These include vaccines by Pfizer (PFE)/BioNTech and AstraZeneca (AZN). Two doses of their COVID-19 vaccine have been found to be about 88% effective against the delta variant, per a CNN report. Moreover, Moderna’s (MRNA) COVID-19 vaccine has been successful in producing neutralizing titers against all variants tested, including the rapidly-spreading delta variant (B.1.617.12).
ETFs That Might Gain
The impressive consumer confidence levels are likely to boost the consumer discretionary sector, which attracts a major portion of consumer spending. Below we have highlighted 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
This is the largest and most popular product in the consumer discretionary space, with AUM of $19.98 billion. It tracks the Consumer Discretionary Select Sector Index. The fund charges 12 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: ETFs to Buy on Tesla's Q2 Earnings Strength).
Vanguard Consumer Discretionary ETF VCR
This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index. VCR charges investors 10 bps in annual fees. The product has managed $6.69 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Will ETFs Suffer as US Consumer Sentiment Falls in July?).
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. FXD has AUM of $1.95 billion. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.
Fidelity MSCI Consumer Discretionary Index ETF FDIS
This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $1.67 billion in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook.
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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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