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ETFs to Shine Bright on Upbeat US Consumer Confidence in April

The latest U.S. consumer confidence data looks encouraging as the metric has risen for the second consecutive month in April. Markedly, the metric had hit a one-year high in March. The Conference Board's measure of consumer confidence index stands at 121.7 for April comparing favorably with March’s revised reading of 109. Moreover, April’s reading beat the consensus estimate of 113.0, per a Reuters’ poll. Notably, the metric stands at the highest level since last February, when the index was at 132.6.

The Present Situation Index, which gauges consumer views on current business and labor market conditions, rose to 139.6 in April from 110.1 in March. 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, climbed to 109.8 in April from March’s 108.3.

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 24.7 in April (the largest in 13 months) from 8 in March, per a Reuters article. Meanwhile, uncertainty surrounding the coronavirus pandemic with concerns looming around the new variants may keep a check on consumer spending, at least in the near term.

In this regard, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “consumer confidence has rebounded sharply over the last two months and is now at its highest level since February 2020. Consumers’ assessment of current conditions improved significantly in April, suggesting the economic recovery strengthened further in early Q2. Consumers’ optimism about the short-term outlook held steady this month. Consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus checks.”

Factors Instilling Optimism

The U.S. economy seems to be strongly rebounding from the coronavirus led-slowdown. Several factors like reopening of the U.S. economy, accelerated coronavirus vaccine rollout and solid fiscal support are raising consumer optimism.

Notably, the University of Michigan’s preliminary consumer sentiment index rose to 86.5 from 84.9 in March. Though the reading seems impressive and at a pandemic-high level but it lagged economists’ forecast of a reading of 89, per a Bloomberg’s survey. Notably, the survey was conducted from Mar 24 to Apr 14, per a Bloomberg article.

In this regard, Surveys of Consumers chief economist Richard Curtin has said that “many fewer consumers mentioned the appeal of low prices and many more justified buying based on improved job and income prospects,” (per a Bloomberg article).

Further, the release of strong economic data like retail sales and unemployment is also consistently fueling the market rally. Notably, U.S. retail sales recorded the best gains during March in 10 months, according to a Reuters article. Markedly, sales surged 9.8% sequentially in March 2021 following a downward revision of 2.7% in the previous month. The metric also surpassed market predictions of a 5.9% rise.

The latest update on U.S. manufacturing output looks encouraging, largely as U.S. factory production rose the highest in March in eight months. Per the Fed’s recently-released data, total industrial production rose 1.4% in March. Going on, there was a 2.7% and 5.7% respective rise in manufacturing output and mining production.

The rolling out of a large COVID-19 vaccination drive has buoyed hopes of faster U.S. economic reopening of non-essential businesses and the return to normalcy. Moreover, strengthening optimism, the United States has administered around 200 million doses of vaccines under 100 days of Biden administration, per a CNN report. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults have received at least one vaccine dose, per a Reuters article.

A large fiscal stimulus has also resulted in an upbeat scenario for U.S. economic recovery. In this regard, Biden has signed the $1.9-TRILLION coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law. Notably, the $1,400 stimulus checks have boosted spending activity across the board. 

Additionally, the Fed’s continued dovish stance is increasing chances of speedy U.S. economic growth recovery from the coronavirus-induced sluggishness. The central bank decided to maintain rates at near-zero level until 2023, at least. Moreover, the Fed raised its economic growth outlook considering the vaccine and stimulus optimism and expectations of an uptick in inflation this year.

ETFs That Might Gain

The moderate improvement in consumer confidence is likely to boost the consumer discretionary sector, which attracts a major portion of consumer spending. Also, the space comprises businesses that sell goods and services, which are considered non-essential by consumers. Markedly, the sector is likely to be a major gainer as the U.S. economy gradually returns to the pre-pandemic level as more parts of it reopen.

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 $20.64 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 Blowout Q1 Earnings).

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 $6.16 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: ETFs to Gain on Strong U.S. Consumer Sentiment in April).

First Trust Consumer Discretionary AlphaDEX ETF 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 $1.85 billion. It charges 63 bps in annual fees and has a Zacks ETF Rank #2, with a Medium-risk outlook (read: 4 Sector ETFs to Watch for Gains in Q2).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $1.63 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 (read: Cash in on the Reopening US Economy Optimism With These ETFs).

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VIPERS-CONS DIS (VCR): ETF Research Reports
 
SPDR-CONS DISCR (XLY): ETF Research Reports
 
FT-CONSUMR DIS (FXD): ETF Research Reports
 
FID-CON DIS (FDIS): ETF Research Reports
 
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