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US Consumer Sentiment Slips in February: Will ETFs Suffer?
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U.S. consumers are feeling the heat of the continuously rising inflation levels. The latest disappointing preliminary consumer sentiment readings for early February that have slipped to the lowest level in more than a decade highlight the same. The University of Michigan’s preliminary consumer sentiment dropped to 61.7 in early February from a final reading of 67.2 last month. The metric, which witnessed the lowest level since October 2011, lagged the market forecast of a slight rise to 67.5, per the Reuters survey on economists.
The disappointing consumer sentiment reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that can feel the impact are The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Vanguard Consumer Discretionary ETF (VCR - Free Report) , First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) .
The measure of current economic conditions dipped to 68.5 in February (the lowest since August 2011) from 72 last month. In February, a gauge of consumer expectations slid to 57.4 (the lowest since November 2011) from a reading of 64.1 in January.
One-year inflation is expected to rise to 5% in February (the highest since July 2008) from 4.9% in the previous month (per a Reuters article). The survey's five-to-10-year inflation outlook remained at 3.1% in February.
Notably, the latest decline in U.S. consumer sentiment levels is largely due to deteriorating personal financial scenarios from surging inflation levels along with declining confidence in the government's economic policies (according to Richard Curtin, director of the survey). Reportedly, the discouraging long-term economic outlook in a decade is also a factor behind the soft consumer sentiment levels.
In this regard, Conrad DeQuadros, senior economic advisor at Brean Capital in New York, said that "The Fed's view that inflation running slightly below 2% was a problem was one that consumers never saw as a problem, but consumers now see inflation as the problem," per the Reuters article.
Present U.S. Economic Scenario
Market gyrations have been a common phenomenon in 2022. After some rally in the early part of last week (for the week ending Feb 11), major broader indices ended the week in the red due to red-hot inflation readings and intensifying geopolitical tensions. Last week, a solid fourth-quarter earnings season and an improving labor market kept market participants upbeat.
Global markets were hurt by the escalating tensions between Russia and Ukraine on Feb 11. This led to an increase in oil prices as well. The market participants were already dealing with red-hot inflation readings as the consumer price index (CPI) jumped 7.5% year over year in January, marking the largest 12-month gain since February 1982. The high inflation has set the stage for the first interest rate hike as soon as March.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6% year over year, marking the highest growth since August 1982. Energy prices remained a key contributor to the inflation numbers, with a 27% year-over-year increase.
Meanwhile, the strong jobs report for January has supported some market optimism. The U.S. economy added 467,000 jobs in January 2022, surpassing market expectations of a rise of 150,000. The upside was largely driven by easing business restrictions amid the reopening of economies and accelerated coronavirus vaccine rollout. January figures stood out to be pleasantly surprising as the Omicron coronavirus variant weighed on the jobs market. The ADP report also showed that private companies cut 301,000 jobs.
The improving jobs report also signals a higher possibility of the Federal Reserve hiking the benchmark interest rates in March. This is preparing investors for the upcoming rate hike, supporting market movements.
ETFs That Might Suffer
Here we discuss in detail 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)
The Consumer Discretionary Select Sector SPDR Fund is the largest and the most popular product in the consumer discretionary space, with AUM of $19.62 billion. XLY tracks the Consumer Discretionary Select Sector Index.
The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.10%. XLY carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook. Also, The Consumer Discretionary Select Sector SPDR Fund trades in three-month average volume of about 9.7 million shares (read: 5 Consumer Discretionary ETFs to Gift Your Valentine).
Vanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.
Vanguard Consumer Discretionary ETF has an AUM of $6.08 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #2, with a Medium-risk outlook. Also, Vanguard Consumer Discretionary ETF trades in three-month average volume of about 187,000 shares (read: ETFs to Buy on Amazon's Big Q4 Earnings Beat).
First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report)
First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.
First Trust Consumer Discretionary AlphaDEX Fund has AUM of $1.67 billion. FXD charges 0.61% in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, First Trust Consumer Discretionary AlphaDEX Fund trades in three-month average volume of about 208,000 shares.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.
Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.54 billion in its asset base. FDIS charges 8 basis points in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook. Fidelity MSCI Consumer Discretionary Index ETF trades in three-month average volume of about 223,000 shares.
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US Consumer Sentiment Slips in February: Will ETFs Suffer?
U.S. consumers are feeling the heat of the continuously rising inflation levels. The latest disappointing preliminary consumer sentiment readings for early February that have slipped to the lowest level in more than a decade highlight the same. The University of Michigan’s preliminary consumer sentiment dropped to 61.7 in early February from a final reading of 67.2 last month. The metric, which witnessed the lowest level since October 2011, lagged the market forecast of a slight rise to 67.5, per the Reuters survey on economists.
The disappointing consumer sentiment reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that can feel the impact are The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Vanguard Consumer Discretionary ETF (VCR - Free Report) , First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) .
The measure of current economic conditions dipped to 68.5 in February (the lowest since August 2011) from 72 last month. In February, a gauge of consumer expectations slid to 57.4 (the lowest since November 2011) from a reading of 64.1 in January.
One-year inflation is expected to rise to 5% in February (the highest since July 2008) from 4.9% in the previous month (per a Reuters article). The survey's five-to-10-year inflation outlook remained at 3.1% in February.
Notably, the latest decline in U.S. consumer sentiment levels is largely due to deteriorating personal financial scenarios from surging inflation levels along with declining confidence in the government's economic policies (according to Richard Curtin, director of the survey). Reportedly, the discouraging long-term economic outlook in a decade is also a factor behind the soft consumer sentiment levels.
In this regard, Conrad DeQuadros, senior economic advisor at Brean Capital in New York, said that "The Fed's view that inflation running slightly below 2% was a problem was one that consumers never saw as a problem, but consumers now see inflation as the problem," per the Reuters article.
Present U.S. Economic Scenario
Market gyrations have been a common phenomenon in 2022. After some rally in the early part of last week (for the week ending Feb 11), major broader indices ended the week in the red due to red-hot inflation readings and intensifying geopolitical tensions. Last week, a solid fourth-quarter earnings season and an improving labor market kept market participants upbeat.
Global markets were hurt by the escalating tensions between Russia and Ukraine on Feb 11. This led to an increase in oil prices as well. The market participants were already dealing with red-hot inflation readings as the consumer price index (CPI) jumped 7.5% year over year in January, marking the largest 12-month gain since February 1982. The high inflation has set the stage for the first interest rate hike as soon as March.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6% year over year, marking the highest growth since August 1982. Energy prices remained a key contributor to the inflation numbers, with a 27% year-over-year increase.
Meanwhile, the strong jobs report for January has supported some market optimism. The U.S. economy added 467,000 jobs in January 2022, surpassing market expectations of a rise of 150,000. The upside was largely driven by easing business restrictions amid the reopening of economies and accelerated coronavirus vaccine rollout. January figures stood out to be pleasantly surprising as the Omicron coronavirus variant weighed on the jobs market. The ADP report also showed that private companies cut 301,000 jobs.
The improving jobs report also signals a higher possibility of the Federal Reserve hiking the benchmark interest rates in March. This is preparing investors for the upcoming rate hike, supporting market movements.
ETFs That Might Suffer
Here we discuss in detail 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)
The Consumer Discretionary Select Sector SPDR Fund is the largest and the most popular product in the consumer discretionary space, with AUM of $19.62 billion. XLY tracks the Consumer Discretionary Select Sector Index.
The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.10%. XLY carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook. Also, The Consumer Discretionary Select Sector SPDR Fund trades in three-month average volume of about 9.7 million shares (read: 5 Consumer Discretionary ETFs to Gift Your Valentine).
Vanguard Consumer Discretionary ETF (VCR - Free Report)
Vanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.
Vanguard Consumer Discretionary ETF has an AUM of $6.08 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #2, with a Medium-risk outlook. Also, Vanguard Consumer Discretionary ETF trades in three-month average volume of about 187,000 shares (read: ETFs to Buy on Amazon's Big Q4 Earnings Beat).
First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report)
First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.
First Trust Consumer Discretionary AlphaDEX Fund has AUM of $1.67 billion. FXD charges 0.61% in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, First Trust Consumer Discretionary AlphaDEX Fund trades in three-month average volume of about 208,000 shares.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.
Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.54 billion in its asset base. FDIS charges 8 basis points in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook. Fidelity MSCI Consumer Discretionary Index ETF trades in three-month average volume of about 223,000 shares.