Consumers have shown unexpected resilience to the concerns regarding rising Omicron cases and high inflation levels in December. They seem to be optimistic about improving employment conditions and recovering U.S. economy from the pandemic-led slowdown.
The Conference Board's measure of consumer confidence index stands at 115.8 in December, comparing favorably with an upwardly revised reading of 111.9 in November. December’s reading surpassed the consensus estimate of the metric, coming in at 111, per a Bloomberg poll. The metric continues to be below the pre-pandemic level of 132.6 hit in February 2020.
The Present Situation Index, which gauges consumer views on current business and labor market conditions, remained flat at 144.1 in December from 144.4 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, climbed to 96.9 from 90.2.
The encouraging consumer confidence reading might support the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that might gain 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, reportedly said, "Consumer confidence improved further in December, following a very modest gain in November. The Present Situation Index dipped slightly but remains very high, suggesting the economy has maintained its momentum in the final month of 2021. Expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all increased.”
However, the Conference Board is still expecting high chances of consumer confidence and spending to bear the brunt of rising inflation levels and adverse impacts from the possible worsening of the pandemic due to winter as we move to 2022, per the verified sources.
The latest consumer sentiment readings for December also look very encouraging as the metric rose despite rising Omicron variant cases. The University of Michigan’s final consumer sentiment rose to 70.6 during December, up from the preliminary estimate of 70.4 and 67.4 in November.
In this regard, economists from Jefferies have said that “Consumers are going to continue to avail themselves of services as they come back on line and recent trends suggest that they have not slowed down much on goods spending as well," per a MarketWatch article.
ETFs That Might Gain
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 $23.74 billion. XLY tracks the Consumer Discretionary Select Sector Index.
The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.12%. XLY carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Home Depot (NYSE:HD) Rises Post Q3 Earnings: ETFs to Buy).
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 AUM of $7.29 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: Fed Speeds Up Taper Plans: Sector ETFs to Gain).
First Trust Consumer Discretionary AlphaDEX Fund (FXD)
First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, employing the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.
First Trust Consumer Discretionary AlphaDEX Fund has AUM of $1.92 billion. FXD charges 61 basis points (bps) in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI (LON:IMI) Consumer Discretionary Index.
Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.98 billion in its asset base. FDIS charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: ETFs to Play the Reopening Trade as Omicron Fear Subsides).
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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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