The Federal Reserve’s monetary tightening campaign saw inflation declining sharply over the past year. The Federal Reserve faced a massive challenge to curb the inflation level from a 40-year high of 9.1% in June 2022 to 3.2% in February 2024 as personal income remained high, which continued to boost consumer spending.

However, inflation has declined sharply while personal income and consumer spending continue to grow. This shows the underlying strength of the economy.

The Commerce Department reported that personal income increased $66.5 billion, or 0.3% month over month in February.

Disposable personal income, which is calculated after personal current taxes, increased by $50.3 billion or 0.2% during the same period.

At the same time, consumer spending surged by $145.5 billion, or 0.8% month over month in February. Personal savings amounted to $745.7 billion, with the personal savings rate standing at 3.6% in February.

Cooling inflation is allowing consumers to spend freely. The Federal Reserve has left interest rates unchanged since July 2023 after hiking it by 525 basis points since March 2022. The nation’s economy, too, is on solid ground as the GDP grew 3.4% in the final quarter of 2023.

Also, optimism surrounding rate cuts is high after the Federal Reserve signaled that it plans three interest rate cuts of 25 basis points each by the end of this year. Lower borrowing cots will further allow people to spend lavishly.

3 Best Choices

We have, thus, selected three consumer discretionary and retail mutual funds, namely Fidelity Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) , Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) and Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) , carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. These funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Consumer DiscretionaryPortfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX uses the fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.

Fidelity Select Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 4.2% and 12.5% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.75%, which is below the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.

Fidelity Select Retailing Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 4.3% and 14.2% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.72%, which is below the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.

Fidelity Select Leisure & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 9.9% and 13.8% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is below the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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