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The U.S. consumer sentiment has marginally improved amid rising concerns about surging coronavirus cases and inflationary levels. The University of Michigan’s preliminary consumer sentiment inched up to 71 in September from 70.3 last month. The metric, however, lagged market’s forecast of 72, per a Bloomberg survey of economists.

The measure of current economic conditions slipped to 77.1 in September from August’s 78.5. Meanwhile, a gauge of consumer expectations edged up to 67.1 in September from 65.1 in the previous month.

Moving on, one-year inflation expectation increased to 4.7% (the highest since 2008) in September from 4.6% in August. Meanwhile, the survey’s five-year inflation outlook remained steady at 2.9% in September.

In this regard, Surveys of Consumers chief economist Richard Curtin, said that “The steep August falloff in consumer sentiment ended in early September, but the small gain still meant that consumers expected the least favorable economic prospects in more than a decade,” (per a Reuters article).

Notably, consumers seem to be disturbed about the rising prices of homes, vehicles and household durables. In fact, the buying attitude for vehicles and homes is contracting.

Current U.S. Economic Scenario

Investors have their eyes on the minutes from the Fed’s two-day policy meeting that will begin on Sep 21. Fears surrounding the rising inflationary levels have aggravated as the producer price index witnessed the largest annual surge since November 2010 (per a CNBC article). The metric rose 0.7% in August and 8.3% year over year. It is being speculated that rising inflation levels may build more pressure on the Fed to tighten monetary policies.

Several economic data releases are also weighing on investors’ minds. The U.S. economy added only 235,000 jobs in August 2021 (the lowest in seven months). The metric lagged the forecast of 750,000 as a surge in COVID-19 infections kept companies from hiring and workers from actively looking for a job. Consumer confidence in the United States slipped to a six-month low in August.

The latest update on U.S. industrial output looks disappointing as the damages from Hurricane Ida and the ongoing health crisis took a toll on the metric. The consistent crunch in raw material supplies and labor as a result of the pandemic has been a serious concern. Per the Fed’s recently-released data, total industrial production rose 0.4% in August versus an increase of 0.8% in July.

There are still certain positive developments that can help stimulate a market rally. President Joe Biden has outlined a very effective plan to increase the vaccination rate and control the outbreak. He has made it mandatory for federal employees to get the COVID-19 vaccination, per a CNBC article. The Biden government will also issue guidelines to the Labor Department for imposing vaccine mandates for employers with more than 100 employees or run weekly tests.

The latest retail sales data has pleasantly surprised investors. The metric rose 0.7% sequentially in August 2021, comparing favorably with market expectations of a 0.8% decline, per a CNBC article.

The latest ISM Manufacturing Purchasing Managers’ Index (PMI) data for the United States is painting a rosy picture for the industrial sector. The metric rose to 59.9 in August  from 59.5 in July and surpassed forecasts of 58.6, per a Reuters article. Any reading above 50% indicates expansion in U.S. manufacturing activities. Notably, the manufacturing sector, which makes up 11.9% of the U.S. economy, saw the reading expanding for the 15th consecutive month.

ETFs That Might Gain

The nominal improvement in consumer sentiment might support the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Here we have highlighted the four most popular funds that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and most popular product in the consumer discretionary space, with AUM of $19.94 billion. It tracks the Consumer Discretionary Select Sector Index. The fund charges 12 basis points (bps) in fees per year and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: ETF Areas to Gain From the Upcoming Holiday Shopping Season).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index. VCR charges investors 10 bps in annual fees. The product has managed $6.70 billion in its asset base and carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: Will ETFs Gain on Starbucks’ Q3 Earnings Beat Amid Pandemic?).

First Trust Consumer Discretionary AlphaDEX Fund FXD

This fund tracks the StrataQuant Consumer Discretionary Index, which employs the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index. FXD has AUM of $1.99 billion. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index. The product has amassed $1.62 billion in its asset base. It charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: ETFs to Rise on Full FDA Approval for Pfizer COVID-19 Vaccine).

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Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
 
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
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