ETFs to Gain as US Consumer Confidence Rises in October
The rise in consumer confidence on easing Delta variant concerns and improving labor market conditions might help the consumer discretionary sector, which attracts a major portion of consumer spending.
Surprisingly, consumer confidence in the United States rose in October primarily on the heels of easing Delta variant concerns, improving labor market conditions, rebounding U.S. economy from the pandemic-led slump and accelerated coronavirus vaccine rollouts. The Conference Board's measure of consumer confidence index stands at 113.8 in comparison to 109.8 in September. The metric has finally broken the streak of three consecutive monthly declines. October’s reading also beat the consensus estimate of the metric, coming in at 108.3, per a Reuters’ poll. 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, increased to 147.4 in October from 144.3 in the previous month. The Expectations Index, which measures consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, also rose to 91.3 from 86.7.
Moreover, the survey’s labor market differential, calculated from data on respondents’ views on whether sufficient jobs are available or difficult to get, surged to a reading of 45 (the highest in 21 years) from 43.5 in September, per a Reuters article.
In this regard, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “Consumer confidence improved in October, reversing a three-month downward trend as concerns about the spread of the Delta variant eased. While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted. The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October—a sign that consumer spending will continue to support economic growth through the final months of 2021.”
Consumers seem to be looking forward to buying homes, motor vehicles and major household durables. In fact, the buying attitude for vehicles and homes is expanding. The survey also showed that the proportion of the population planning to go on a vacation has shot up to the highest level since February 2020, as mentioned in a Reuters article.
Present U.S. Economic Scenario
In another encouraging development, the retail sales data was remarkable. The metric rose 0.7% in September against the Dow Jones estimate of a 0.2% decline. This, in turn, marks a 13.9% increase from the year-ago figure (according to a CNBC article). After excluding auto-related sales, retail sales were up 0.8%, surpassing the 0.5% estimate and gaining 15.6% on a year-over-year basis.
Lower-than-expected weekly jobless claims were added to the list of positive economic data releases. Initial unemployment insurance claims in the week ending Oct 22 came in at 281,000, as mentioned in a CNBC article. According to the same article, the metric compared favorably with analysts’ expectations of 289,000 claims (per a Dow Jones survey).
The latest ISM Manufacturing Purchasing Managers' Index (PMI) data for the United States paints a rosy picture of the U.S. economic recovery. According to a Reuters article, the metric rose to 61.1% in September from 59.9% in August and surpassed forecasts of a decrease to 59.6%.
Any reading above 50% indicates expansion in U.S. manufacturing activities. The manufacturing sector, which makes up 12% of the U.S. economy, saw the reading rise forthe 16th consecutive month.
Meanwhile, the U.S. GDP growth came in at 2.0% for the third quarter, missing the expectations of 2.8%. The reading disappoints in comparison to 6.7% growth witnessed in the second quarter.
Also, the minutes from the Federal Open Market Committee’s September meeting highlighted that the Fed might begin tapering the fiscal stimulus support program from mid-November.
The central bank is expected to roll back the month-end bond purchases by cutting $10 billion of $80 billion a month in Treasury’s and $5 billion from $40 billion a month in mortgage-backed securities (per a CNBC article). If everything goes well, the Federal Reserve expects to finish off tapering by mid-2022.
ETFs That Might Gain
The rise in consumer confidence might help the consumer discretionary sector, which attracts a major portion of consumer spending. Here we 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 the most popular product in the consumer discretionary space, with AUM of $21.90 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 in Focus Post Dismal Amazon Q3 Results).
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 managed $7.06 billion in its asset base and sports a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: 5 Consumer Discretionary ETFs Rising to New Highs).
First Trust Consumer Discretionary AlphaDEX Fund FXD
This fund tracks the StrataQuant Consumer Discretionary Index, employing the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index. FXD has AUM of $1.94 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 amassed $1.70 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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