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Consumer Sentiment Drops in September: ETFs to Consider
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Key Takeaways
Consumer sentiment fell 7% in September to its lowest level in four months.
Year-ahead inflation expectations climbed to 4.6%, the highest since June.
Consumer staples, utility and healthcare ETFs may offer stability as consumer sentiment weakens.
A mix of economic pressures has been a key challenge for investors and consumers this year, as persistent inflationary pressures and ongoing geopolitical tensions continue to weigh on consumer sentiment and undermine confidence.
Per the University of Michigan's Surveys of Consumers, U.S. consumer sentiment declined in September, with the Index of Consumer Sentiment falling 7% from August and 12.7% from a year ago. According to the survey’s director, Joanne Hsu, consumer sentiment slipped to a four-month low in September, marking a 15% drop from January 2026.
The CBOE Volatility Index, which reflects market expectations for near-term volatility, climbed 8.47% in the latest session, extending its gains over the past five sessions to 13.91% and over the past month to 10.64%. The rise signals growing uncertainty and a more cautious investor stance, with a risk-off tone also evident across the broader market.
Growing economic pressures and heightened market volatility are weighing on consumer finances, prompting consumers to become more cautious and pull back on discretionary spending as confidence weakens.
With economic pressures expected to persist in the near term, elevated market volatility continues to create uncertainty for both households and investors. According to the survey, expectations for both current and year-ahead personal finances fell about 10% this month, as concerns over high prices continued to intensify.
Inflation Could Keep Consumer Confidence Under Pressure
Inflation is expected to remain a major drag on consumer confidence through the remainder of 2026 and into early 2027. Per the survey, year-ahead inflation expectations increased from 4% in August to 4.6% this month, reaching their highest level since June. The reading is above all readings recorded in 2024.
Long-run inflation expectations inched up to 3.4% from 3.3%, ending a three-month stretch at 3.3%. They remain above the 2.8-3.2% recorded in 2024.
Uncertainty surrounding the conflict between Washington and Tehran continues to complicate the inflation outlook, with rising oil prices reinforcing expectations that persistent energy-driven inflation will remain a key hurdle. West Texas Intermediate (WTI) crude and Brent crude have gained 3.6% and 5.5%, respectively, over the past five days.
Meanwhile, growing concerns that substantial AI-related spending could add to inflationary pressures further cloud the outlook for consumer confidence.
ETFs to Consider
Below, we have highlighted a few funds that investors may consider as consumer confidence weakens and sentiment is expected to remain under pressure in the coming months.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Consumer staples include everyday necessities that typically see steady demand across economic cycles, making the sector less sensitive to economic fluctuations. Consumer staples stocks are often favored for their defensive characteristics, steady growth potential and relatively low volatility, particularly during economic downturns.
Investors can consider State Street Consumer Staples Select Sector SPDR ETF (XLP - Free Report) , VanguardConsumer Staples ETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Among the above-mentioned funds, XLP stands out as a well-rounded option. The fund is the cheapest option, charging an annual fee of 0.08%, while also offering the highest dividend yield of 2.68%. All the funds mentioned have a Zacks ETF Rank #3 (Hold).
XLP is both the largest and most liquid of the above-mentioned consumer staple ETFs, with an asset base of $13.98 billion and a one-month average trading volume of 9.71 million shares.
Utility ETFs
As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services.
Investors should gain from funds like Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) and iShares U.S. UtilitiesETF (IDU - Free Report) .
XLU and VPU have a Zacks ETF Rank #2 (Buy), with XLU being the cheapest option, charging an annual fee of 0.08%. XLU and VPU offer similar dividend yields of 3.07% and 3.03%, respectively.
XLU is both the largest and most liquid of the above-mentioned utility ETFs, with an asset base of $20.92 billion and a one-month average trading volume of 22.03 million shares.
Healthcare ETFs
The healthcare sector is non-cyclical, providing a defensive tilt to the portfolio amid market turmoil. Given its relative resilience in low-growth and uncertain environments, the sector often attracts increased investor interest in such phases.
Investors can look at funds like Health Care Select Sector SPDR Fund (XLV - Free Report) , Vanguard Health Care ETF (VHT - Free Report) and iShares U.S. Healthcare ETF (IYH - Free Report) .
Both XLV and VHT sport a Zacks ETF Rank #1 (Strong Buy), whereas IYH carries a Zacks ETF Rank#3 (Hold). Regarding annual fees, XLV is the cheapest option, charging 0.08%, closely followed by VHT at 0.09%. Both XLV and VHT offer similar dividend yields of 1.49% and 1.44%, respectively.
XLV is both the largest and most liquid of the above-mentioned healthcare ETFs, with an asset base of $43.31 billion and a one-month average trading volume of 7.39 million shares.
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Consumer Sentiment Drops in September: ETFs to Consider
Key Takeaways
A mix of economic pressures has been a key challenge for investors and consumers this year, as persistent inflationary pressures and ongoing geopolitical tensions continue to weigh on consumer sentiment and undermine confidence.
Per the University of Michigan's Surveys of Consumers, U.S. consumer sentiment declined in September, with the Index of Consumer Sentiment falling 7% from August and 12.7% from a year ago. According to the survey’s director, Joanne Hsu, consumer sentiment slipped to a four-month low in September, marking a 15% drop from January 2026.
The CBOE Volatility Index, which reflects market expectations for near-term volatility, climbed 8.47% in the latest session, extending its gains over the past five sessions to 13.91% and over the past month to 10.64%. The rise signals growing uncertainty and a more cautious investor stance, with a risk-off tone also evident across the broader market.
Growing economic pressures and heightened market volatility are weighing on consumer finances, prompting consumers to become more cautious and pull back on discretionary spending as confidence weakens.
With economic pressures expected to persist in the near term, elevated market volatility continues to create uncertainty for both households and investors. According to the survey, expectations for both current and year-ahead personal finances fell about 10% this month, as concerns over high prices continued to intensify.
Inflation Could Keep Consumer Confidence Under Pressure
Inflation is expected to remain a major drag on consumer confidence through the remainder of 2026 and into early 2027. Per the survey, year-ahead inflation expectations increased from 4% in August to 4.6% this month, reaching their highest level since June. The reading is above all readings recorded in 2024.
Long-run inflation expectations inched up to 3.4% from 3.3%, ending a three-month stretch at 3.3%. They remain above the 2.8-3.2% recorded in 2024.
Uncertainty surrounding the conflict between Washington and Tehran continues to complicate the inflation outlook, with rising oil prices reinforcing expectations that persistent energy-driven inflation will remain a key hurdle. West Texas Intermediate (WTI) crude and Brent crude have gained 3.6% and 5.5%, respectively, over the past five days.
Meanwhile, growing concerns that substantial AI-related spending could add to inflationary pressures further cloud the outlook for consumer confidence.
ETFs to Consider
Below, we have highlighted a few funds that investors may consider as consumer confidence weakens and sentiment is expected to remain under pressure in the coming months.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Consumer staples include everyday necessities that typically see steady demand across economic cycles, making the sector less sensitive to economic fluctuations. Consumer staples stocks are often favored for their defensive characteristics, steady growth potential and relatively low volatility, particularly during economic downturns.
Investors can consider State Street Consumer Staples Select Sector SPDR ETF (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Among the above-mentioned funds, XLP stands out as a well-rounded option. The fund is the cheapest option, charging an annual fee of 0.08%, while also offering the highest dividend yield of 2.68%. All the funds mentioned have a Zacks ETF Rank #3 (Hold).
XLP is both the largest and most liquid of the above-mentioned consumer staple ETFs, with an asset base of $13.98 billion and a one-month average trading volume of 9.71 million shares.
Utility ETFs
As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services.
Investors should gain from funds like Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) and iShares U.S. Utilities ETF (IDU - Free Report) .
XLU and VPU have a Zacks ETF Rank #2 (Buy), with XLU being the cheapest option, charging an annual fee of 0.08%. XLU and VPU offer similar dividend yields of 3.07% and 3.03%, respectively.
XLU is both the largest and most liquid of the above-mentioned utility ETFs, with an asset base of $20.92 billion and a one-month average trading volume of 22.03 million shares.
Healthcare ETFs
The healthcare sector is non-cyclical, providing a defensive tilt to the portfolio amid market turmoil. Given its relative resilience in low-growth and uncertain environments, the sector often attracts increased investor interest in such phases.
Investors can look at funds like Health Care Select Sector SPDR Fund (XLV - Free Report) , Vanguard Health Care ETF (VHT - Free Report) and iShares U.S. Healthcare ETF (IYH - Free Report) .
Both XLV and VHT sport a Zacks ETF Rank #1 (Strong Buy), whereas IYH carries a Zacks ETF Rank#3 (Hold). Regarding annual fees, XLV is the cheapest option, charging 0.08%, closely followed by VHT at 0.09%. Both XLV and VHT offer similar dividend yields of 1.49% and 1.44%, respectively.
XLV is both the largest and most liquid of the above-mentioned healthcare ETFs, with an asset base of $43.31 billion and a one-month average trading volume of 7.39 million shares.