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ETFs to Gain on Strong U.S. Consumer Sentiment in April

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The U.S. economy seems to be strongly rebounding from the coronavirus led-slowdown. Several factors like reopening of the U.S. economy, accelerated coronavirus vaccine rollout and a solid fiscal support are raising consumer optimism.

Notably, the University of Michigan’s preliminary consumer sentiment index rose to 86.5  from 84.9 in March. Though the reading seems impressive and at a pandemic-high level but it lagged the economists forecast of a reading of 89, per a Bloomberg’s survey. Notably, the survey was conducted from Mar 24 to Apr 14, per a Bloomberg article.

The measure of current conditions also rose to 97.2 from 93 in March. Meanwhile, a gauge of consumer expectations remained flat at 79.7. Moving on, one-year inflation expectation climbed to 3.7% from 3.1% while the five-to-10-year inflation outlook was steady at 2.7%, per a Reuters article.

In this regard, director of the survey Richard Curtin said that “many fewer consumers mentioned the appeal of low prices and many more justified buying based on improved job and income prospects,” (per a Bloomberg article).

How is the U.S. Economy Doing?

The release of strong economic data like retail sales and unemployment is consistently fueling the market rally. Notably, U.S. retail sales recorded the best gains during March in 10 months, according to a Reuters article. Markedly, sales surged 9.8% sequentially in March 2021 following a downward revision of 2.7% in the previous month. The metric also surpassed market predictions of a 5.9% rise.

Also, first-time filings for unemployment insurance slid to the lowest level since March 2020, according to the CNBC article. Notably, the Labor Department reported 576,000 new jobless claims for the week ended Apr 10 in comparison to a forecast of 710,000, per a Dow Jones poll.

The latest U.S. housing sector data highlights that growing demand is boosting the homebuilder confidence despite soaring softwood lumber prices, and other material and labor costs.

There are several other factors, which are instilling confidence in the U.S. market, the first being the accelerated coronavirus vaccine rollout that buoyed hopes of a faster U.S. economic reopening of non-essential businesses and the return to normalcy. Moreover, strengthening optimism, the White House chief medical advisor Dr. Anthony Fauci said that he is expecting the country to restart administration of the Johnson & Johnson’s single-shot COVID-19 vaccine, per a CNBC article.

Additionally, the Fed’s continued dovish stance is increasing chances of a speedy U.S. economic growth recovery from the coronavirus-induced sluggishness. The central bank decided to maintain rates at near-zero level until 2023 at least. Moreover, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.

An unprecedented fiscal aid is also painting a rosy picture for small-cap companies. President Joe Biden already signed the $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law.

It is also worth noting here that on Mar 31, Biden unveiled his $2.3-trillion infrastructure development plan that focuses on improving the American infrastructure. The proposal includes funds for restoring roads and bridges, shoring up affordable housing, backing clean-energy projects and creating a nationwide broadband network. This will create millions of jobs, resulting in solid hiring in the coming months and benefit sectors like basic materials, industrials and utilities.

Moreover, James Ragan, director of wealth management research at D.A. Davidson said that “we remain bullish on equity markets overall, and see continued strength in cyclical sectors that will benefit from a broad-based economic recovery that is underway,” per a CNBC article.

ETFs That Might Gain

The moderate improvement in consumer sentiment is likely to boost the consumer discretionary sector, which attracts a major portion of consumer spending. Below we highlighted 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 - Free Report)

This is the largest and the most popular product in the consumer discretionary space with AUM of $20.82 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: 4 ETFs to Buy in April to Tap Likely Market Rally).

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 managed $6.10 billion in its asset base and carries a Zacks ETF Rank #2 with a Medium-risk outlook (read: Consumer Discretionary ETFs to Ride Stimulus & Vaccine Optimism).

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 $1.83 billion. It charges 63 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 Index. The product amassed $1.59 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: Cash in on the Reopening US Economy Optimism With These ETFs).

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