The U.S. consumer sentiment continues to be weighed down by inflation concerns and slipped to a decade-low level in February. The University of Michigan’s final consumer sentiment reading came in at 62.8 in February, improving from the preliminary reading of 61.7 in early February. The metric compared unfavorably with the reading of 67.2 in January.

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 Quick QuoteXLY - Free Report) , Vanguard Consumer Discretionary ETF (VCR Quick QuoteVCR - Free Report) , First Trust Consumer Discretionary AlphaDEX Fund (FXD Quick QuoteFXD - Free Report) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS Quick QuoteFDIS - Free Report) .

The measure of current economic conditions dipped to 68.2 in February from 72 in January. In February, a gauge of consumer expectations slid to 59.4 from a reading of 64.1 in January. One-year inflation is expected to rise to 4.9% in February. The survey's five-to-10-year inflation outlook remained at 3% in February.

Notably, the decline in U.S. consumer sentiment levels is largely due to deteriorating personal financial scenarios, starting from surging inflation levels to declining confidence in the government's economic policies.

In this regard, Richard Curtin, director of the survey, said that “The February descent resulted from inflationary declines in personal finances, a near universal awareness of rising interest rates, falling confidence in the government’s economic policies, and the most negative long term prospects for the economy in the past decade,” per the BloombergQuint article.

It is important to note that the survey was conducted before Russia attacked Ukraine. The surging commodity prices from the war can have damaging impacts on the countries with already high inflation levels.

Going on, the Conference Board's measure of consumer confidence index stands at 110.5 in February 2022 (the lowest since last September), lagging the reading of 111.1 in January. However, February’s reading surpassed the consensus estimate of 110.0, per a Reuters poll. The metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.

The Present Situation Index, which gauges consumer views on current business and labor market conditions, surged to 145.1 in February from 144.5 last month. The Expectations Index, which measures consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, however, decreased to 87.5 from 88.8.

ETFs That Might Suffer

The bright spot amid disappointing U.S. consumer sentiment levels is that consumer spending has remained robust. In fact, a recent report highlighted that inflation-adjusted expenditures surged the maximum in January in 10 months (per a BloombergQuint article).

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 Quick QuoteXLY - 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 $19.59 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 10.4 million shares (read: Inflation Fear Overblown? 4 Retail Sector ETFs & Stocks Look Stout).

Vanguard Consumer Discretionary ETF (VCR Quick QuoteVCR - Free Report)

Vanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.

Vanguard Consumer Discretionary ETF has AUM of $5.91 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 159,000 shares (read: 4 Sector ETFs to Win From Fed Rate Hike).

First Trust Consumer Discretionary AlphaDEX Fund (FXD Quick QuoteFXD - 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 $1.62 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 234,000 shares.

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

Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.

Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.48 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 232,000 shares.