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Americans are gaining optimism as the University of Michigan consumer sentiment for the United States increased to 59.8 in October of 2022, the highest in six months, up from 58.6 in the previous month and above market expectations of 59, a preliminary estimate showed.
The current economic conditions index increased to 65.3 from 59.7 while the expectations gauge dropped to 56.2 from 58. The median expected year-ahead inflation rate rose to 5.1% from 4.7%, with increases reported across age, income, and education. Also, long-run inflation expectations increased to 2.9% from 2.7%.
Rising consumer confidence bodes well for household spending in the coming months and is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending.
According to Wells Fargo, consumers had accumulated as much as $2.1 trillion in excess savings during the peak of the pandemic helped by fiscal support and lack of spending options amid lockdowns. That’s a huge sum in an economy with $25 trillion in annual GDP. Though these savings are rapidly declining amid high inflation, consumers still have $1.3 trillion in extra spending power as of August, as quoted on Yahoo Finance.
“Excess savings currently total around 14% of a year’s spending, with almost all saved in bank accounts and other liquid assets,” Joseph Briggs, an economist for Goldman Sachs, observed in a research note published lately, as quoted on tker.co.
U.S. consumers have demonstrated a willingness to continue to pay higher prices despite a sluggish economy that even has a chance to enter into a recession, according to credit card giants American Express and Bank of America, as quoted on CNBC.
American Express recently reported stronger-than-expected third-quarter earnings and revenue, while raising its full-year forecast. The company said overall customer spending rose 21% year over year, driven by growth in goods and services as well as travel and entertainment.
Bank of America CEO Brian Moynihan also said recently that the bank’s customers continue to spend spontaneously, using their credit cards and other payment methods for 10% more transaction volume in September and the first half of October than a year earlier, as indicated on a CNBC article.
Moreover, one can bet on consumer-discretionary stocks now as the late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.
Mastercard SpendingPulse says U.S. retail sales are expected to rise non-inflation adjusted 7.1% year over year (up 8.5% versus 2021) for the holiday season, excluding autos and gas. As a result, the consumer discretionary sector has every chance to outperform in Q4. If this was not enough, the Fed may slower its rate hike momentum from December.
Against this backdrop, below we highlight a few consumer ETFs that could gain ahead.
The underlying MSCI US Investable Market Consumer Discretionary 25/50 Index is designed to transition in and out of securities affected by pending updates to the consumer discretionary sector. The fund charges 10 bps in fees.
The underlying MSCI USA IMI Consumer Discretionary Index represents the performance of the consumer discretionary sector in the U.S. equity market. The fund charges 8 bps in fees.
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 fund charges 10 bps in fees.
The underlying S&P Retail Select Industry Index represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is a modified equal weight index. The fund charges 35 bps in fees.
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Why Should You Buy Consumer ETFs Now?
Americans are gaining optimism as the University of Michigan consumer sentiment for the United States increased to 59.8 in October of 2022, the highest in six months, up from 58.6 in the previous month and above market expectations of 59, a preliminary estimate showed.
The current economic conditions index increased to 65.3 from 59.7 while the expectations gauge dropped to 56.2 from 58. The median expected year-ahead inflation rate rose to 5.1% from 4.7%, with increases reported across age, income, and education. Also, long-run inflation expectations increased to 2.9% from 2.7%.
Rising consumer confidence bodes well for household spending in the coming months and is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending.
According to Wells Fargo, consumers had accumulated as much as $2.1 trillion in excess savings during the peak of the pandemic helped by fiscal support and lack of spending options amid lockdowns. That’s a huge sum in an economy with $25 trillion in annual GDP. Though these savings are rapidly declining amid high inflation, consumers still have $1.3 trillion in extra spending power as of August, as quoted on Yahoo Finance.
“Excess savings currently total around 14% of a year’s spending, with almost all saved in bank accounts and other liquid assets,” Joseph Briggs, an economist for Goldman Sachs, observed in a research note published lately, as quoted on tker.co.
U.S. consumers have demonstrated a willingness to continue to pay higher prices despite a sluggish economy that even has a chance to enter into a recession, according to credit card giants American Express and Bank of America, as quoted on CNBC.
American Express recently reported stronger-than-expected third-quarter earnings and revenue, while raising its full-year forecast. The company said overall customer spending rose 21% year over year, driven by growth in goods and services as well as travel and entertainment.
Bank of America CEO Brian Moynihan also said recently that the bank’s customers continue to spend spontaneously, using their credit cards and other payment methods for 10% more transaction volume in September and the first half of October than a year earlier, as indicated on a CNBC article.
Moreover, one can bet on consumer-discretionary stocks now as the late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.
Mastercard SpendingPulse says U.S. retail sales are expected to rise non-inflation adjusted 7.1% year over year (up 8.5% versus 2021) for the holiday season, excluding autos and gas. As a result, the consumer discretionary sector has every chance to outperform in Q4. If this was not enough, the Fed may slower its rate hike momentum from December.
Against this backdrop, below we highlight a few consumer ETFs that could gain ahead.
ETFs in Focus
Vanguard Consumer Discretionary ETF (VCR) – Zacks Rank #2
The underlying MSCI US Investable Market Consumer Discretionary 25/50 Index is designed to transition in and out of securities affected by pending updates to the consumer discretionary sector. The fund charges 10 bps in fees.
Fidelity MSCI Consumer Discretionary ETF (FDIS - Free Report) – Zacks Rank #2
The underlying MSCI USA IMI Consumer Discretionary Index represents the performance of the consumer discretionary sector in the U.S. equity market. The fund charges 8 bps in fees.
Consumer Discretionary Select Sector ETF (XLY - Free Report) – Zacks Rank #2
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 fund charges 10 bps in fees.
SPDR S&P Retail ETF (XRT - Free Report) – Zacks Rank #2
The underlying S&P Retail Select Industry Index represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is a modified equal weight index. The fund charges 35 bps in fees.