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Inflation Fear Overblown? 4 Retail Sector ETFs & Stocks Look Stout

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Retail sales in the United States jumped 3.8% sequentially in January 2022, rebounding from an upwardly revised 2.5% drop in December, and much better than market forecast of a 2% rise. The reading marked the biggest increase in retail sales in 10 months, as consumers splurged on shopping despite rising COVID-19 cases and red-hot inflation. Year over year, retail sales grew 13% in January.

This means that mounting inflation is not bothering consumer spending as feared. According to the University of Michigan, consumer sentiment is at its lowest level since October 2011 due to soaring inflation. But a combination of rising employment, higher wages, and accumulated savings enable consumers to pay for those extra prices. Notably, household Saving Rate in the United States increased to 7.90% in December from 7.20% in November 2021.

Consumer spending makes up about 70% of U.S. economic activity. Thus, any massive jump in it will likely brighten the economic growth prospects. Below we highlight a few areas and the related ETFs that should stay afloat in the coming days.

Non-Store Retailers

Sales of this category rose 14.5% sequentially. Year over year, sales were up 8.4%. Consumers’ interest in buying products online amid rising virus cases kept the demand high for the segment.

The ETF pick here is ProShares Online Retail ETF (ONLN - Free Report) .The underlying ProShares Online Retail Index is a specialized retail index that tracks retailers that principally sell online or through other non-store channels. The fund charges 58 bps in fees.

The stock pick is Grubhub .The Zacks Rank #2 company provides an online food delivery marketplace. It is focused on connecting consumers and restaurants through its platforms.

Department Stores

Sales grew 3.6% sequentially in January and 7.6% year over year. Within the group, department stores recorded a 9.2% sequential surge in sales and an 11.5% year-over-year uptick.

As far as the ETF is concerned, VanEck Retail ETF (RTH - Free Report) holds several department stores. iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report) , which employs data science techniques to identify companies with exposure to the discretionary spending sector, also offers exposure to the segment.

Investors can have a look at Walmart Inc. (WMT - Free Report) . Walmarthas evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. The stock has a Zacks Rank #3 (Hold).

Furniture & Home Furnishing Stores

Sales jumped 7.2% sequentially in January and 2.7% year over year.

VanEck Retail ETF (RTH - Free Report) has solid exposure to various home improvement companies like Lowe’s and Home Depot.

Our stock selection here is Lowe's Companies (LOW - Free Report) . The Zacks Rank #2 company operates as a home improvement company in the United States, Canada and Mexico. It offers a line of products for maintenance, repair, remodeling and decorating.

Building Material & Garden Equipment & Supplies Dealers

The segment Building Material & Garden Equipment & Supplies Dealers saw a 4.1% sequential gain in sales in January. Moreover, the segment’s sales were 12.2% higher year over year. Not only this, the space recorded a notable uptick in sales in December too, hinting at consumers’ continued interest in this area.

As far as the ETF is concerned, broad-based retail ETFs like Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) and VanEck Retail ETF (RTH - Free Report) should fit the bill.

Zacks Rank #2 (Buy) stock Central Garden & Pet (CENT - Free Report) may win from this trend. Central Garden is looking forward to strengthening its position as one of the leading companies in the U.S. pet supplies and lawn and garden supplies space.


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