Consumers seem to be losing their enthusiasm about the recoveries in the labor market and U.S. economy from the pandemic-led slowdown. The Conference Board's measure of consumer confidence index stands at 113.8 in January, lagging the downwardly revised reading of 115.2 in December. However, January’s reading surpassed the consensus estimate of the metric, coming in at 111.2, 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, surged to a five-month high level of 148.2 in January. The Expectations Index, which measures consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, however, decreased to 90.8 from 95.4.
The disappointing consumer confidence reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that can feel the impact 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, said, "Expectations about short-term growth prospects weakened, pointing to a likely moderation in growth during the first quarter of 2022. Looking ahead, both confidence and consumer spending may continue to be challenged by rising prices and the ongoing pandemic,” as stated in a BloombergQuint article.
Meanwhile, a rise in the proportion of consumers eyeing to buy homes, automobiles, and major appliances over the next six months has been observed.
The latest disappointing preliminary consumer sentiment readings for early January that have slipped to the second-lowest level in a decade also deserve mention here. The University of Michigan’s preliminary consumer sentiment declined to 68.8 in early January from 70.6 last month. The metric lagged the market forecast of a fall to 70.0, per the Reuters survey on economists.
ETFs That Might Suffer
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 $20.66 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. Also, The Consumer Discretionary Select Sector SPDR Fund trades in three-month average volume of about 8.7 million shares (read: Tesla (NASDAQ:TSLA) Posts Record Q4 Revenues: ETFs in Focus).
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 $6.34 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #2, with a Medium-risk outlook. Also, Vanguard Consumer Discretionary ETF trades in three-month average volume of about 181,000 shares (read: ETF Areas to Consider for Rotating Out of Tech in 2022).
First Trust Consumer Discretionary AlphaDEX Fund FXD
First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.
First Trust Consumer Discretionary AlphaDEX Fund has AUM of $1.70 billion. FXD charges 61 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, First Trust Consumer Discretionary AlphaDEX Fund trades in three-month average volume of about 183,000 shares.
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 $1.56 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. Fidelity MSCI Consumer Discretionary Index ETF trades in three-month average volume of about 213,000 shares.
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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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