Rising inflation in recent months has sparked concerns among investors that the Federal Reserve might slow down the pace of its interest rate cuts this year. As a result, volatility returned to Wall Street in January. However, on Wednesday, the major indexes rebounded after fresh data showed that inflation eased in December.

With this encouraging trend, it may be wise to consider investing in consumer discretionary and retail funds such as Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) and Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) .

Inflation Moderates in December

According to the Commerce Department's report on Wednesday, the consumer price index (CPI) rose by 0.4% in December, slightly above the consensus estimate of a 0.3% increase. Year over year, CPI rose 2.9%, in line with analysts’ expectations.

Core CPI, which excludes volatile food and energy prices, jumped 0.2% in December, lower than the consensus estimate of a rise of 0.3%. On a year-over-year basis, core CPI climbed 3.2%, slightly better than economists' projections of a 3.3% increase.

Following the release of the inflation data, all major indexes rallied. The Dow, the S&P 500 and the Nasdaq surged 1.7%, 1.8% and 2.5%, respectively, marking their best performance since Nov. 6. Although markets rallied after Trump’s victory last year, they faltered in late December as concerns about rising inflation overshadowed the traditional Santa Claus rally.

The Federal Reserve began cutting interest rates in September, slashing a total of 100 basis points after inflation dropped significantly in the earlier half of 2024. However, inflationary pressures in October and November raised fears that the Fed might pause or slow its rate-cutting cycle. The latest data, showing a slowdown in inflation, has eased some of these worries and raised optimism surrounding future rate cuts.

3 Best Choices

As a result, we've chosen three funds from the retail and discretionary sectors that are worth buying. These funds have given impressive 5-year and 10-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stocks of companies engaged in merchandising finished goods and services, primarily to individual consumers.

Fidelity Select Retailing Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 13.5% and 14.5% over the past five and 10-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.64%, which is lower than the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of its assets in securities of companies primarily engaged in manufacturing, marketing, or distributing consumer staples products. Fidelity Select Consumer Staples Portfolio fund invests in both U.S. and non-U.S. issuers.

Fidelity Select Consumer Staples Portfolio has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 6.7% and 6.1% over the past five and 10-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.68%, lower than the category average of 0.94%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.

Fidelity Select Leisure Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 13.8% and 12.5% over the past five and 10-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.69%, lower than the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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