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The 2023 economic story has centered around declining inflation coinciding with stronger-than-expected economic growth leading to the United States skirting a recession so far. And this happened despite the economy navigating the highest interest rate environment in more than two decades. But as we approach 2024, the stronger-than-expected consumer demand may push inflation up.
And why not? Wages are growing at a 4.4% pace from a year ago. Real wages (adjusted for inflation) are positive for the first time since March 2021. This underscores the labor market strength over inflation (which is hovering around 3%), as quoted on Yahoo. And new data from a New York Fed survey released Monday showed the average wage workers are willing to leave a job for is now $78,645, an all-time high and up 8% from last year.
"We see building upside risks for goods prices more broadly as demand for goods is picking up again just as commodity prices have been rising, inventories appear to have reached a peak, and the disinflationary forces from supply chains correcting could be reaching an end," Citi economist Veronica Clark wrote in a note on Monday, as quoted on Yahoo.
And this is going to be new normal. "The 'free disinflationary lunch' from rapidly falling energy prices, cooling food price inflation and easing core goods inflation is now over and any additional disinflationary momentum will have to come from slower month-over-month gains in core services prices," EY-Parthenon chief economist Gregory Daco recently said on Yahoo.
Against this backdrop, below we highlight a few sector ETFs that could emerge as intriguing bets currently.
The strength of the consumer has been a key driver of the economy's resilience in the face of challenges. Despite the highest interest rate environment in decades, consumer spending has remained resilient, with retail sales showing a 0.7% uptick in July. This trend suggests that consumers are continuing to spend on goods, indicating the potential for sustained growth in the consumer discretionary sector. A positive real wage is a great news for this cyclical sector ETF.
The ebbing pandemic is a plus points for the transportation sector. The industry has been enjoying continued strong demand with improvements in the supply chain. Delays still exist, but supply chain issues are slowly improving. This can be viewed as a ray of hope.
Technology – Global X Cloud Computing ETF (CLOU - Free Report) ) – Zacks Rank #1
The technology sector continues to prove its mettle despite higher rates, making it an attractive investment option. Amid concerns of reaccelerating inflation, technology companies have demonstrated the ability to maintain profitability even in the face of rising costs. Many tech firms have streamlined operations to mitigate cost pressures. Additionally, the sector's focus on automation, artificial intelligence, and digital transformation should boost funds like CLOU.
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3 Sector ETFs to Play on Positive Real Wages
The 2023 economic story has centered around declining inflation coinciding with stronger-than-expected economic growth leading to the United States skirting a recession so far. And this happened despite the economy navigating the highest interest rate environment in more than two decades. But as we approach 2024, the stronger-than-expected consumer demand may push inflation up.
And why not? Wages are growing at a 4.4% pace from a year ago. Real wages (adjusted for inflation) are positive for the first time since March 2021. This underscores the labor market strength over inflation (which is hovering around 3%), as quoted on Yahoo. And new data from a New York Fed survey released Monday showed the average wage workers are willing to leave a job for is now $78,645, an all-time high and up 8% from last year.
"We see building upside risks for goods prices more broadly as demand for goods is picking up again just as commodity prices have been rising, inventories appear to have reached a peak, and the disinflationary forces from supply chains correcting could be reaching an end," Citi economist Veronica Clark wrote in a note on Monday, as quoted on Yahoo.
And this is going to be new normal. "The 'free disinflationary lunch' from rapidly falling energy prices, cooling food price inflation and easing core goods inflation is now over and any additional disinflationary momentum will have to come from slower month-over-month gains in core services prices," EY-Parthenon chief economist Gregory Daco recently said on Yahoo.
Against this backdrop, below we highlight a few sector ETFs that could emerge as intriguing bets currently.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) ) – Zacks Rank #1 (Strong Buy)
The strength of the consumer has been a key driver of the economy's resilience in the face of challenges. Despite the highest interest rate environment in decades, consumer spending has remained resilient, with retail sales showing a 0.7% uptick in July. This trend suggests that consumers are continuing to spend on goods, indicating the potential for sustained growth in the consumer discretionary sector. A positive real wage is a great news for this cyclical sector ETF.
Transportation – SPDR S&P Transportation ETF (XTN - Free Report) ) – Zacks Rank #2 (Buy)
The ebbing pandemic is a plus points for the transportation sector. The industry has been enjoying continued strong demand with improvements in the supply chain. Delays still exist, but supply chain issues are slowly improving. This can be viewed as a ray of hope.
Technology – Global X Cloud Computing ETF (CLOU - Free Report) ) – Zacks Rank #1
The technology sector continues to prove its mettle despite higher rates, making it an attractive investment option. Amid concerns of reaccelerating inflation, technology companies have demonstrated the ability to maintain profitability even in the face of rising costs. Many tech firms have streamlined operations to mitigate cost pressures. Additionally, the sector's focus on automation, artificial intelligence, and digital transformation should boost funds like CLOU.