The net worth of American households touched a fresh all-time high in the second quarter of 2021 powered by a faster-than-expected recovery of the U.S. economy from the coronavirus-led crisis. On Sep 23, Fed reported that household net worth jumped $5.85 trillion or 4.3% in second-quarter 2021 from the first quarter to reach $141.7 trillion.
Year over year, the net worth of Americans jumped 19.6% on easy comparison. The value of equities (which is mainly responsible for the rise in household net worth) increased nearly $3.5 trillion while the value of real estate held by households rose around $1.2 trillion. On a flip side, debt also swelled. Household debt grew 7.9%. Consumer credit
grew at an annual pace of 8.6%, while mortgage debt was up 8%. Will the Trend Continue Successfully?
Easy money and fiscal policies that propelled the stock prices and consumer savings drove the net worth. The U.S. stock market hovered around the record high level. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 4.6%, 8.2% and 9.5%, respectively.
Moreover, the small-cap specific Russell 2000 advanced 4.1% and the mid-cap centric S&P 400 gained 3.3% in the second quarter. All these reflect a broad-based rally in second-quarter 2021 and added to the consumers’ net worth.
We believe the trend may slow down a bit in the coming days as the Fed taper talks and the actual move may slower the winning momentum of Wall Street. Moreover, rates will rise if the Fed enacts taper. In that case, mortgage rates will also go up, causing slowdown again in the homebuying spree (notably, the housing market is already troubled with low inventory and higher prices).
But then, fiscal stimulus is still there in place in various forms. On Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Aug 10, the U.S. Senate had passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Moreover, pent-up demand from the lockdown will also materialize once vaccination will be complete and booster shots will take momentum.
In a nutshell, the overall picture of the household savings is going to be decent-to-upbeat in the coming days. Investors can take the opportunity with a long-term view and buy these ETFs.
ETFs in Focus Consumer Discretionary Select Sector SPDR ETF ( XLY Quick Quote XLY - Free Report) – Zacks Rank #2 (Buy)
The underlying Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index. The 63-stock fund puts 22.44% weight in Amazon, followed by Tesla (15.03%) and Home Depot (8.78%). It charges 12 bps in fees.
iShares U.S. Home Construction ETF ( ITB Quick Quote ITB - Free Report) – Zacks Rank #2 (Buy)
Buyers may jump into homebuying before mortgage rates go up materially. The underlying Dow Jones U.S. Select Home Builders Index of ITB is a subset of the Dow Jones U.S. Household Goods Index. It measures the performance of the home construction sector of the U.S. equity market. The fund charges 41 bps in fees. D R Horton (13.81%), Lennar (13.27%) and NVR (8.12%) are the top three holdings of the fund.
Materials Select Sector SPDR ETF ( XLB Quick Quote XLB - Free Report) – Zacks Rank #1 (Strong Buy)
Pent-up demand and the infrastructure bill should charge up materials stocks. The underlying Materials Select Sector Index of the fund seeks to provide an effective representation of the materials sector of the S&P 500 Index. Chemicals (68.83%), Containers & Packaging (13.39%) and Metals & Mining (12.84%) are the top three segments of the fund. The fund charges 12 bps in fees.
SPDR S&P Semiconductor ETF ( XSD Quick Quote XSD - Free Report) – Zacks Rank #1
There is a surge in all types of chips demand amid a global shortage. Notably, the stay-at-home trend due to the coronavirus pandemic has bolstered demand for gaming chips and data center business. Chip makers set the stage for digitization in various corners like healthcare, transport, financial systems, defense, agriculture, and retail among others. The touch of rising net worth will surely benefit the segment.
SPDR S&P Transportation ETF ( XTN Quick Quote XTN - Free Report) – Zacks Rank #2
Economic reopening, rising vaccination and higher net worth will be reflected onto various forms of activities and transportation stocks will gain from that. Trucking (35.62%), Airlines (26.73%) and Air Freight & Logistics (19.48%) are the top three areas of the fund. It charges 35 bps in fees (read:
Labor Shortages Hit FedEx Q1 Earnings: ETFs in Focus).