Time for Consumer ETFs as Americans Are Regaining Confidence?
U.S. consumer confidence gained in May, suggesting that the worst of the coronavirus-driven economic deterioration is probably a matter of the past. The economy was shut down in mid-March and marked the deepest contraction in the first quarter since the Great Recession. There were at least 21.4 million job losses in March and April.
Consumer spending is very important for U.S. economic wellbeing as it contributes 70% of the U.S. GDP.A measure of consumer confidence jumped to 86.6 this month from 85.7 in April, according to the Conference Board. Economists polled by Dow Jones expected consumer confidence of 82.3 in May.
Agreed, the Conference Board survey’s present situation measure has fallen to 71.1 this month from 73.0 in April. But the expectations index based on consumers’ short-term outlook for income, business and labor market conditions climbed to 96.9 from a reading of 94.3 in April.
A few days back, the University of Michigan’s U.S. consumer sentiment index also came in at 73.7 for May, up from 71.8 in April and way higher than the Dow Jones estimate of 65. Bank of America has also started to see consumer spending inch higher after plummeting with the start of the coronavirus lockdown.
The improved sentiment is reflected in the homebuilding sector asconfidence among U.S. single-family homebuilders rose in May with the National Association of Home Builders/Wells Fargo Housing Market Index rising seven points to 37 this month after a record decline in April. Sales of new U.S. single-family homes increased by 623,000 last month, beating estimates of 490,000, according to Dow Jones.
How Confidence Is Being Shored Up
Economic Stimulus
A super-dovish Fed and the government stimulus made this rebound in sentiment possible. Congress has already passed about $3 trillion in rescue funds and is planning another round, has gone a long way in protecting U.S. consumer sentiments.
The U.S. government is now considering The Heroes Act worth $1 trillion. The act intends to provide funds to state, local, territorial and tribal governments that need funds to pay key workers. Funds will also be there for treatment and research. There could be second round of payments through a $1,200 stimulus check.
Along with some analysts, we too believe that the CARES relief checks and extensive price discounting boosted consumers’ attitude toward buying. According to a new survey from Piper Sandler, about 47% of the respondents said recently that they will head to restaurants as soon as they reopen.
Vaccine Hopes
The hope for vaccine is also acting as a tailwind. The World Health Organization has recognised some 10 prime candidates as potential vaccines. These candidates include mRNA-1273 vaccine by Moderna Inc. (MRNA), ‘ChAdOx1 nCoV-19’ from Oxford University (which is showing limited success as of now), Beijing-based Sinovac Biotech’s candidate PiCoVacc, RNA vaccine candidate from the collaboration of U.S.-based Pfizer and German pharmaceutical company BioNtech, and DNA-based vaccine from INOVIO Pharmaceuticals (INO).
Also, U.S.-based Novavax (NVAX) said lately that it has started human testing of its coronavirus vaccine candidate, and expects preliminary results for the trial in July. There are more than 100 candidates lying in the pre-clinical stage.
ETF Picks
Against this backdrop, below we highlight a few consumer-oriented ETFs that could be beneficial for investors. These ETFs have gained considerably past month.
Invesco S&P SmallCap Consumer Discretionary ETF PSCD">PSCD – Up 15% Past Month
SPDR S&P Retail ETF XRT – Up 11.1% Past Month
First Trust Consumer Discretionary AlphaDEX Fund FXD – Up 9.1% Past Month
John Hancock Multi-Factor Consumer Discretionary ETF JHMC – Up 8.9% Past Month
First Trust Nasdaq Retail ETF FTXD – Up 8.1% Past Month
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SPDR SP Retail ETF (XRT): ETF Research Reports
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
First Trust NASDAQ Retail ETF (FTXD): ETF Research Reports
John Hancock Multifactor Consumer Discretionary ETF (JHMC): ETF Research Reports
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