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Will ETFs Gain as US Consumer Confidence Improves in January?

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Consumer confidence in the United States improved in January after declining in December. It seems like the introduction of another round of stimulus and the beginning of the inoculation process have supported consumers. The Conference Board's measure of consumer confidence index stands at 89.3, comparing favorably with December’s reading of 87.1. Moreover, January’s reading slightly beat the consensus estimate of 89, per a Reuters’ poll. Notably, the metric continued to be 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, declined to 84.4 this month from 87.2 in December. 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, rose to 92.5 from 87 in December.

Moreover, the survey’s labor market differential, calculated from data on respondents’ views on whether sufficient jobs are available or difficult to get, declined to a reading of (3.2) in January from (1.9) in December, 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.

In this regard, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “consumers' appraisal of present-day conditions weakened further in January, with COVID-19 still the major suppressor. Consumers' expectations for the economy and jobs, however, advanced further, suggesting that consumers foresee conditions improving in the not-too-distant future. In addition, the percent of consumers who said they intend to purchase a home in the next six months improved, suggesting that the pace of home sales should remain robust in early 2021.”

Present U.S. Economy Scenario

It is being believed that the chances of another trench of coronavirus-aid package and improved coronavirus vaccine rollout are making a strong case in favor of faster U.S. economic recovery in 2021. Going on, democrats have taken control of the U.S. Senate with two Georgia victories. Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural development and boosting jobs in the near future.

President Joe Biden has announced details of his $1.9-trillion stimulus plan, which has been named the American Rescue Plan. The relief package will extend the additional federal unemployment payment through September and will raise it to $400 per week. The new plan also includes $1,400 of direct payments to many Americans and extends the federal moratoriums on evictions and foreclosures through September, per a CNBC article.

The stimulus proposal also allocates $350 billion in state and local governments support, sets aside around $70 billion for coronavirus testing and vaccination programs, and increases the federal minimum wage to $15 per hour, according to the same CNBC article. It is worth noting here that there is ambiguity regarding whether Biden’s proposal will be approved by Congress.

The starting of the vaccination process among people is buoying optimism. Biden is expected to increase the distribution of coronavirus vaccines by giving more finds to local and state officials, increasing the number of vaccination sites and introducing a national education campaign.

Meanwhile, the Fed in its commitment to drive economic recovery has decided to keep the interest rates at near-zero level. The central bank will also continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment levels.

ETFs That Might Gain

The moderate improvement in consumer confidence can help 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 - Free Report)

This is the largest and most popular product in the consumer discretionary space, with AUM of $19.29 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: Tesla Hits Brake After Dismal Q4 Earnings: ETFs to Watch).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

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 $5.28 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Cyclical ETFs in Spotlight on Biden's American Rescue Plan).

First Trust Consumer Discretionary AlphaDEX ETF (FXD - Free Report)

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 $1.45 billion. It charges 64 bps in annual fees and has a Zacks ETF Rank #2, with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)

This fund tracks the MSCI USA IMI/Consumer Discretionary 25/50 Index. The product has amassed $1.39 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.

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