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Consumer Discretionary ETFs to Ride Stimulus & Vaccine Optimism

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The progress in coronavirus vaccine rollout is presenting a stronger case in favor of a faster return to normalcy and economic recovery. In fact, investors are showing increased interest toward consumer discretionarystocks like Disney (DIS - Free Report) and Target (TGT) which are expected to benefit from the re-opening of the U.S. economy.

Going on, investor optimism surrounding the reopening of the U.S. economy got a boost when Centers for Disease Control and Prevention announced that people who completed the coronavirus vaccination process can safely hold indoor meets without the compulsion to wear masks, as mentioned in a CNBC article. Furthermore, California health officials gave a nod to Disney’s Disneyland and other theme parks along with outdoor stadiums and ball parks to reopen with limited capacity on Apr 1, as stated in the above-mentioned article.

There is no denying the fact that the world is seeing impressive progress with respect to coronavirus vaccine development and distribution. Notably, the FDA awarded the Emergency Use Authorization to COVID-19 vaccine that is developed by Janssen Pharmaceutical Companies of Johnson & Johnson (JNJ - Free Report) . The company also informed that the U.S. Centers for Disease Control and Prevention's (CDC) Advisory Committee on Immunization Practices (ACIP) recommended its COVID-19 vaccine. Johnson & Johnson started shipping and aims at delivering more than 20 million doses to the U.S. government in March and targets 100 million doses in the first half of 2021.

Furthermore, Merck & Co., Inc. (MRK) signed multiple agreements to make available its existing manufacturing facilities for the development of COVID-19 vaccines and medicines after its own efforts to create vaccines failed. It signed a deal with J&J to support the manufacturing of the latter’s single-shot COVID-19 vaccine.

In fact, President Joe Biden informed that the country currently projects to have sufficient COVID-19 vaccines for all adults who want to get vaccinated by the end of May, per a YahooFinance article.

In another development favorable for the consumer discretionary sector, the Senate has approved Biden’s $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021. Senate had to amend some provisions of the plan for this approval. Now, the legislation needs to go back to the House that passed the earlier version of the proposal last week. Notably, the legislation is expected to reach Biden’s table for signature before unemployment aid programs expire on Mar 14.

The coronavirus relief bill provides direct support to small businesses, $1,400 direct checks to Americans falling under the eligibility criteria, a rise in the child tax credit for a year, direct funding to the state and local governments along with funding for schools and increased funds for coronavirus vaccine distribution and testing, per a CNBC article. However, the stimulus checks’ income thresholds are now modified while the weekly unemployment benefits are slashed from $400 to $300 by the Senate and will now run through September, as stated in the same report.

The increase in direct payments to Americans definitely comes as a ray of hope for players in the consumer discretionary sector, which attracts a major portion of consumer spending. A number of restaurants and retailers that have resumed business after restrictions were relaxed in the United States should see some accelerated demand and footfall. Also, the leisure and entertainment space should see a rebound as casinos and amusement parks have started welcoming visitors.

ETFs to Consider

Consumer confidence in the United States improved again in February. The Conference Board's measure of consumer confidence index stands at 91.3, comparing favorably with January’s reading of 88.9. Moreover, February’s reading slightly beat the consensus estimate of 90, per a Reuters’ poll. However, the metric continues to be below the pre-pandemic level of 132.6 in February 2020.

Along with the other favorable factors as mentioned above, the moderate improvement in consumer confidence is likely to boost the consumer discretionary sector. 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 $18.09 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: ETF Areas to Consider as Senate Passes COVID-19 Relief Bill).

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 $5.11 billion in its asset base and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: 5 ETFs to Buy on Amazon's Blockbuster Q4 Earnings).

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 $1.59 billion. It charges 63 bps in annual fees and has a Zacks ETF Rank #2, with a Medium-risk outlook (read: Will ETFs Rally as US Consumer Confidence Improves in February?).

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

This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $1.33 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: Cyclical ETFs to Gain Amid the Bullish Market Scenario).

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