ETFs to Shine Bright as US Consumer Confidence Soars in June

The latest U.S. consumer confidence data looks impressive as the metric has surged to its highest level in June in about 16 months. The Conference Board’s measure of consumer confidence index stands at 127.3, comparing favorably with an upwardly revised reading to 120.0 in May. Moreover, June’s reading surpassed the consensus estimate of 119.0, per a Reuters’ poll.

The Present Situation Index, which gauges consumer views on current business and labor market conditions, rose to 157.7 in June from 148.7 in May, signaling strong economic growth in the second quarter of 2021. 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 107.0 in June from May’s 100.9. Markedly, accelerated vaccine rollout, improving labor market conditions, strong fiscal stimulus support and the reopening of non-essential businesses are expected to expedite the economic recovery pace, keeping investors highly optimistic.

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 43.5 in June (the highest level since 2000) from 36.9 in May, per a Reuters article.

In this regard, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “Consumers’ assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2. Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead. While short-term inflation expectations increased, this had little impact on consumers’ confidence or purchasing intentions. In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose—a sign that consumer spending will continue to support economic growth in the short-term. Vacation intentions also rose, reflecting a continued increase in spending on services.”

Factors Instilling Optimism

Investors have shown immense optimism in the recovering U.S. economy from the pandemic-led slump despite facing rising inflation levels and fears of a rise in interest rates.

Furthermore, per the Fed’s recently-released data, total industrial production rose 0.8% in May. Going on, there was a 0.9%, 1.2% and 0.2% rise, respectively, in manufacturing output, mining and utilities production. Total industrial production rose 16.3% year over year in May.

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.

Going by a CNBC article, Fed Chairman Jerome Powell has remained bullish on the economic recovery achieved so far from the pandemic-led slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.

ETFs That Might Gain

The 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 the most popular product in the consumer discretionary space, with AUM of $20.15 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: 5 Amazon ETFs to Tap on Record-Breaking Prime Day Sales).

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 $6.17 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 May?).

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 $1.85 billion. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Consumer Discretionary ETFs to Shine as US Economy Reopens).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $1.56 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: 5 Top-Ranked ETFs to Bet on After an Encouraging May).