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ETFs to Gain on Upbeat US Consumer Confidence in September

The latest data on U.S. consumer confidence looks encouraging as the metric saw the biggest gain in 17 years in September, at a time when the labor market is also improving. The Conference Board's measure of consumer confidence index stands at 101.8 (the strongest gain since April 2003), comparing favorably with August’s reading of 86.3. Moreover, September’s reading surpassed the consensus estimate of 89.5, per a Reuters’ poll. However, the reading is still below the pre-pandemic level of 132.6 in February.

The Present Situation Index, which gauges consumer views on current business and labor market conditions, rose to 98.5 from 85.8 in August. 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, came in at 104.0 versus 86.6 in August.

Moreover, the survey’s labor market differential, calculated from data on respondents’ views on whether sufficient jobs are available or hard to get, rose to a reading of 2.9 in September from (2.2) in August, per a Reuters article. Meanwhile, the uncertainty surrounding the coronavirus pandemic with the recent rise in the number of new cases may put keep a check on consumer spending in the near term at least. Also, consumers seem to be eagerly waiting for another round of Federal stimulus package.

In this regard, Kathy Bostjancic, chief U.S. financial economist at Oxford Economics in New York, said, “households are becoming more optimistic on the labor market and income front, which should support consumer spending in the coming months. However, the possibility that increased unemployment benefits could expire serves as a strong countervailing force,” per a Reuters article.

Present U.S. Economy Scenario

The jobs data, which showed that the economy added 1.4 million jobs in August and unemployment rate dropped to 8.4% from 10.2%, indicates an improving economy. Encouragingly, about half the jobs that were lost during the pandemic have been recovered.

The third quarter witnessed rise in U.S. manufacturing activity to nearly a two-year high in August owing to solid new orders. Per the Institute for Supply Management’s (ISM) Sep 1 statement, the index of national factory activity rose to a reading of 56.0 last month from 54.2 in July. Economists polled by Reuters forecast a rise in the index to 54.5 in August.

The housing sector seems to be a bright spot in the U.S. economy amid the coronavirus crisis. The recently-released data on the U.S. builder confidence paints an upbeat picture of the U.S. housing market. Per the monthly National Association of Home Builders (“NAHB”)/Wells Fargo Housing Market Index (HMI), builder confidence for newly-built single-family homes surged to an all-time high of 83 points in September compared with 78 points in August. Going on, sales of existing homes in August witnessed the strongest pace of growth since 2006-end. Also, sales of newly-built, single-family homes rose to the highest level in August since September 2006 in the United States.

Moreover, the Fed in its commitment to drive economic recovery at the recently-concluded meeting decided to keep the interest rates at near-zero level.

ETFs That Might Gain

The strengthening consumer confidence can benefit the consumer discretionary sector, which attracts a major portion of consumer spending. 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 $15.75 billion. It tracks the Consumer Discretionary Select Sector Index. The fund charges 13 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Trump vs. Biden First Presidential Debate: ETFs in Focus).

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 $3.77 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Will Coronavirus Vaccine Optimism Drive These ETFs?).

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 $1.09 billion. It charges 64 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 $1.03 billion in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: A Biden Presidency in the Making? ETF Strategies to Follow).

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