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Middle-Class Boosting Spending Power: ETFs Likely to Gain
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After enduring a year and a half of elevated inflation, America's middle class is beginning to witness a restoration in their spending power. However, this resurgence still falls short of pre-pandemic levels. A recent household budget index introduced by Primerica, a financial services company, indicates that middle-income households (earning between $30,000 and $130,000 annually) experienced a rise in purchasing power to 97.5% in July, up from 97% the previous month.
Moderate Recovery and Lingering Deficits
The purchasing power of Americans reached a low point of 85.6% in June 2022 due to high inflation, a significant drop from its peak of 102.8% in November 2020. This decline signifies a loss of six years' worth of purchasing power gains within just 18 months.
The latest increase in purchasing power follows a period of high credit card debt. However, Primerica CEO Glenn Williams acknowledged the incremental progress as they have “seen inflation slow down, and earned incomes begin to increase. Both are positives compared to the way things were previously."
The index, which spans 55 months dating back to 2019, reveals that middle-income households have operated with a spending deficit for roughly 44 out of those 55 months. This suggests that for a considerable period, families have been dealing with insufficiency in their income.
Hence, the recent gains achieved in the spending power could be fleeting. Recent reports indicate credit card balances surpassed $1 trillion and marked a record high. Moreover, a significant portion of credit card borrowers (51%) have been unable to pay off their entire balance each month, resulting in accruing interest.
Good News for Retailers Before the Holiday Season?
Though credit card challenges and deficits are concerning, any improvement in spending pattern prior to the holiday season should benefit retailers and consumer discretionary companies. Hence, investors should keep a close tab on the following ETFs.
Online sales should be in demand due to more prevalence of deals over there. The underlying ProShares Online Retail Index is a specialized retail index that tracks retailers that principally sell online or through other non-store channels (read: ETF Areas & Stocks to Win on Upbeat July Retail Sales).
The fund puts about 24% of its weights in the fund XRT. Clothing sales have been dominant in latest retail sales. Sales in this segment increased 2.2% year over year and 1.0% sequentially in July. The fund has a Zacks Rank #1 (Strong Buy).
Americans are expected to rely on buy now, pay later (BNPL) methods this holiday season amid inflationary concerns and high credit card balances. Some shoppers will resort to buy now and pay later financing to make last-minute purchases, peaking at a record 9% the week before Christmas (per a source). Such a trend would benefit the fintech ETF FINX.
The fund should stand to gain amid inflationary pressure as it has solid exposure to companies like American Express (AXP - Free Report) , Visa (V - Free Report) and Mastercard (MA - Free Report) . These companies’ business model is inflation friendly. Merchants are charged a percentage of every card transaction. As the price of goods and services rises, bill amounts also go up and companies like AXP and Visa get a share of fatter bills. Note that higher credit card balances mean increased card transactions too (read: ETF Strategies to Beat Inflation & Follow Warren Buffett).
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Middle-Class Boosting Spending Power: ETFs Likely to Gain
After enduring a year and a half of elevated inflation, America's middle class is beginning to witness a restoration in their spending power. However, this resurgence still falls short of pre-pandemic levels. A recent household budget index introduced by Primerica, a financial services company, indicates that middle-income households (earning between $30,000 and $130,000 annually) experienced a rise in purchasing power to 97.5% in July, up from 97% the previous month.
Moderate Recovery and Lingering Deficits
The purchasing power of Americans reached a low point of 85.6% in June 2022 due to high inflation, a significant drop from its peak of 102.8% in November 2020. This decline signifies a loss of six years' worth of purchasing power gains within just 18 months.
The latest increase in purchasing power follows a period of high credit card debt. However, Primerica CEO Glenn Williams acknowledged the incremental progress as they have “seen inflation slow down, and earned incomes begin to increase. Both are positives compared to the way things were previously."
Prolonged Deficit & Still-Present Credit Card Challenges
The index, which spans 55 months dating back to 2019, reveals that middle-income households have operated with a spending deficit for roughly 44 out of those 55 months. This suggests that for a considerable period, families have been dealing with insufficiency in their income.
Hence, the recent gains achieved in the spending power could be fleeting. Recent reports indicate credit card balances surpassed $1 trillion and marked a record high. Moreover, a significant portion of credit card borrowers (51%) have been unable to pay off their entire balance each month, resulting in accruing interest.
Good News for Retailers Before the Holiday Season?
Though credit card challenges and deficits are concerning, any improvement in spending pattern prior to the holiday season should benefit retailers and consumer discretionary companies. Hence, investors should keep a close tab on the following ETFs.
ETFs in Focus
ProShares Online Retail ETF (ONLN - Free Report)
Online sales should be in demand due to more prevalence of deals over there. The underlying ProShares Online Retail Index is a specialized retail index that tracks retailers that principally sell online or through other non-store channels (read: ETF Areas & Stocks to Win on Upbeat July Retail Sales).
SPDR S&P Retail ETF (XRT - Free Report)
The fund puts about 24% of its weights in the fund XRT. Clothing sales have been dominant in latest retail sales. Sales in this segment increased 2.2% year over year and 1.0% sequentially in July. The fund has a Zacks Rank #1 (Strong Buy).
Global X FinTech ETF (FINX - Free Report)
Americans are expected to rely on buy now, pay later (BNPL) methods this holiday season amid inflationary concerns and high credit card balances. Some shoppers will resort to buy now and pay later financing to make last-minute purchases, peaking at a record 9% the week before Christmas (per a source). Such a trend would benefit the fintech ETF FINX.
ETFMG Prime Mobile Payments ETF (IPAY - Free Report)
The fund should stand to gain amid inflationary pressure as it has solid exposure to companies like American Express (AXP - Free Report) , Visa (V - Free Report) and Mastercard (MA - Free Report) . These companies’ business model is inflation friendly. Merchants are charged a percentage of every card transaction. As the price of goods and services rises, bill amounts also go up and companies like AXP and Visa get a share of fatter bills. Note that higher credit card balances mean increased card transactions too (read: ETF Strategies to Beat Inflation & Follow Warren Buffett).