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U.S. Consumer Sentiment Disappointing: ETFs in Focus

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After crumbling to its lowest  in January, followed by some rebound in February and a drop in March, the latest consumer sentiment data is disappointing again. Fears about recession dampened consumer sentiment along with the saturation of the impact of 2018 tax overhaul.

Disappointing consumer sentiments data at the onset of the second quarter are egging analysts to gauge the performance of consumer market players in the first quarter.

A Glimpse of the Statistics

The University of Michigan consumer sentiment index dropped to 96.9 in April from 98.4 in March, per preliminary data. It missed economists’ expectations of 98. An index tracking consumer expectations about the future backtracked to 85.8 from 88.8 in the prior month, as quoted on Financial Times.

What Led to the Disappointment?

Weakening economic outlook is considered to be largely responsible for the dip in sentiment. The latest forecast issued at the Federal Open Market Committee meeting on Mar 21, 2019, hints at a slowdown in economic growth. U.S. GDP growth is expected to slow down to 2.1% in 2019 from 3% in 2018. Maintaining the sluggish pace, the GDP growth is expected to be 1.9% in 2020 and 1.8% in 2021.

Consumers believe that all benefits from the 2018 tax overhaul have been accounted for and the net impact neutralized. The year-over-year decline in tax refunds reflects the same.

Moreover, the inversion of the Treasury Yield Curveis bothering consumers as analysts apprehend an economic recession in 2019. Not to forget, the yield curve had inverted in 2008, just before the Great Recession.

Will There Be Dawn After Dusk?

Amid global economic slowdown, not all economic indicators seem to be dull in the U.S. economy.Jobs growth picked up in March and beat estimates, with nonfarm payrolls rising for the 102th straight month. Hiring picked up in almost all major segments of the economy, with the unemployment rate continuing to be at record low levels and wages improving at a steady pace. According to the Bureau of Labor Statistics, the economy added 196,000 jobs in March, exceeding analysts’ estimates. The improvement in hiring moderately eased tensions pertaining to the economy.

Moreover, the key spring selling season has kicked off for the housing market. This busy period for home sellers is expected to drive manufacturing numbers in the U.S. economy.

As icing on the cake, the Fed has been pretty dovish since the start of 2019. Minutes from Fed’s latest meeting on Mar 19-20 reflected less chances of a hike this year. Federal funds rate projections for 2019 were lowered to 2.4% from 2.9%, while the same for 2020 and 2021 was cut to 2.6% from 3.1%. The U.S. benchmark yield is also near 2.48% as of Apr 2, down from the high of 2.79% hit in January. 

Moreover, the U.S. government recently postponed a tariff hike on Chinese imports which hints toward stabilizing trade ties.

ETFs in Focus

Against this backdrop, investors can keep a tab on consumer ETFs like Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report) , John Hancock Multi-Factor Consumer Discretionary ETF (JHMC - Free Report) , First Trust Consumer Discretionary AlphaDEX Fund (FXD - Free Report) , iShares Evolved U.S. Consumer Staples ETF (IECS - Free Report) and Consumer Staples Select Sector SPDR Fund (XLP - Free Report) (see all Consumer Discretionary ETFs here).


The fund tracks the S&P SmallCap 600 Consumer Discretionary Index comprising companies that are principally engaged in providing consumer goods and services that are cyclical in nature, including retail, automotive, leisure and recreation, media and real estate. It comprises 97 holdings with iRobot Corp being the top weight holder (3.3%). The fund’s AUM is $81.3 million and expense ratio is 0.29%. It has a Zacks ETF Rank #3 with a High-risk outlook (read: 5 Discretionary ETFs in Focus on Low Consumer Confidence).


The fund tracks the John Hancock Dimensional Consumer Discretionary Index. It comprises securities in the consumer discretionary sector within the U.S. whose market capitalizations are larger than that of the 1001st largest U.S. company. The fund consists of 102 holdings. Its AUM is $41.3 million and expense ratio is 0.40%. The fund has a Zacks ETF Rank #2 with a Medium-risk outlook.


This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. This fund has a basket size of 106 stocks. FXD has AUM of $346.95 million and charges 64 bps in annual fees. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: U.S. Consumer Sentiment Hit by Shutdown: ETFs in Focus).


This fund tracks the consumer staples sector of the S&P 500 Index.The fund consists of 33 holdings. Its AUM is $11.28 billion and expense ratio is 0.13%. The fund has a Zacks ETF Rank #1 with a Medium-risk outlook.


It is an actively managed fund which employs data science techniques to identify companies with exposure to the consumer staples sector. The fund comprises 130 holdings. Its net assets total $3.9 million and expense ratio is 0.18%.

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