The summer's optimism about the U.S. consumer and economy has waned, with the Consumer Confidence Index dropping in September. According to data released on Tuesday by the Conference Board, the index fell to 103 from August's 108.7, marking the most significant monthly decline since December 2020, as reported by Wells Fargo Economics, as quoted on Yahoo Finance.

Expectations Index Drives Decline

The decline in the Consumer Confidence Index was primarily driven by the Expectations Index, which measures consumers' short-term outlook for income, business, and labor market conditions. In September, it plummeted to 73.7, down from 83.3 in August and 88 in July. Historically, any reading below 80 has signaled a recession within the next year.

Less Confidence for the Future

Dana Peterson, the chief economist at The Conference Board, noted, "Expectations for the next six months tumbled back below the recession threshold of 80, reflecting less confidence about future business conditions, job availability, and incomes." She highlighted factors such as negative corporate earnings news, decreasing job opportunities, and rising interest rates as contributing to this decline. Rising inflation, especially in food and gas prices, also weighed on consumers' minds, along with concerns about the Federal Reserve maintaining higher interest rates and "political uncertainty."

Concerns Align with Wall Street Warnings

Consumer concerns align with warnings from Wall Street economists and strategists. Rising oil prices, auto worker strikes, the resumption of student loan payments, and the potential for a government shutdown have all been identified as headwinds that could impact the American consumer in the coming months, according to economists.

Consumer Confidence vs. Spending

The Yahoo Finance article indicated that Wells Fargo senior economist Tim Quinlan noted that consumer confidence and consumer spending have not consistently matched up in the post-pandemic era, partly due to stimulus-driven spending.

However, this trend may change as credit card delinquencies increase. Quinlan emphasized that with savings depleting and credit becoming scarcer and more expensive, the significant drop in consumer confidence in September could have a more significant impact on actual spending.

Why Quality Investing?

In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.

ETFs in Focus

Below we highlight a few quality ETFs that have beaten the S&P 500 (down 2.9%) in the past one week.

VictoryShares Free Cash Flow ETF (VFLO Quick QuoteVFLO - Free Report) ) – Down 0.7% Past Week

American Century U.S. Quality Value ETF (VALQ Quick QuoteVALQ - Free Report) ) – Down 1% Past Week

SPDR MSCI USA StrategicFactors ETF (QUS Quick QuoteQUS - Free Report) ) – Down 1.9% Past Week

Invesco S&P SmallCap Quality ETF (XSHQ Quick QuoteXSHQ - Free Report) ) – Down 1.8% Past Week

FlexShares Quality Dividend Defensive Index Fund (QDEF Quick QuoteQDEF - Free Report) ) – Down 1.9% Past Week

(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)