After dipping to 124.3 in June, American consumer confidence bounced back to 135.7 in July, marking the highest level since November 2018. The index now hovers around an 18-year high of 137.9 set last October. Both consumers’ assessment of current economic conditions and their expectations for the next six months improved in July.
The upbeat data was not that surprising as the latest Q2 GDP report also echoed the same enthusiasm among consumers. Consumer spending, which accounts for more than two-thirds of U.S. GDP, rose 4.3% in the second quarter (which was the best performance since the fourth quarter of 2017) (read: US Q2 GDP Growth Slows But Beats Estimates: ETF Areas to Win).
The labor market is steady, inflation is low and wages are rising. The “unemployment rate has come in below 4% for 13 of the past 15 months” and “savings are near a three-year high.” Consumer prices as measured by the personal consumption expenditures (PCE) price index grew just 0.1% in June as food and energy prices dropped.
“The recession talk was always overstated,” said Michael Arone, chief investment strategist at State Street Global Advisors, as quoted on CNBC. “The economic data continue to suggest that the economy isn’t near recession, at least in the next year or so,” per State Street Global Advisors. All these factors have probably resulted in upbeat consumer sentiment.
U.S. retail sales also increased 0.4% sequentially in June, breezing past market expectations of a 0.1% rise. Higher purchases of motor vehicles and some other goods led to the beat (read: June Retail Sales Beat Forecast: ETF & Stock Winners).
Investors should also note that the increasing likelihood of the Fed rate cut this month might have pushed up consumer confidence. A dovish Fed and a rallying stock market probably have made consumers confident about the economic outlook.
Oil prices too are not likely to shoot up this year given global growth worries and a possible threat to demand. Savings at gas stations should also result in a fatter consumer wallet. United States Oil Fund, LP (USO - Free Report) , in fact, lost 1.6% in the past month (as of Jul 29, 2019).
Against this backdrop, below we highlight a few ETFs that could be up for gains in the coming days.
Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
The consumer staples sector has been an area to watch lately given that a host of related ETFs are at a 52-week high. Global growth concerns and trade tensions should help this safe-haven sector remain a good buy. The sector also performs well in a low-rate environment. Decent earnings release is another key strength (read: Consumer Staples ETFs Beating Discretionary ETFs: Why?).
SPDR S&P Bank ETF (KBE - Free Report)
The yield curve should steepen in the coming days given chances of Fed policy easing and some upbeat economic data points. Also, a low-rate environment should boost the demand for loans. Solid M&A and IPO activities should also propel banks’ income and the fund KBE.
Russell 2000 Growth Vanguard (VTWG - Free Report)
A moderate pickup in American consumer sentiment as well as an accommodative monetary policy bode well for growth stocks across the small-cap spectrum. Small-cap stocks’ outperformance is associated with the U.S. economy’s wellbeing.
iShares U.S. Home Construction ETF (ITB - Free Report)
Low mortgage rates and upbeat consumer sentiment could result in higher demand and sales for homes, suggesting further run in this already-surging ETF.
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