ETFs
Featured ETFs Report Disappointing Retail Sales Data
Unfavorable inflation data in recent months and high interest rates have led to slower-than-expected retail sales growth in May. Retail sales rose 0.1%, but fell short of the 0.3% expected by experts, according to Yahoo Finance.
After a drop of 0.2% in April, retail sales data remain disappointing. According to Michael Pearce, deputy chief U.S. economist at Oxford Economics, cited on Yahoo Finance, moderation in real income growth and consumer credit constraints, due to high interest rates and use increasing use of credit cards, are leading to a slowdown in consumer spending.
Assessing the Fed’s next move
The pattern of retail sales and consumer spending may determine the Fed’s future plans. Given that consumer spending accounts for about two-thirds of total economic activity, any weakness would indicate both slowing growth and pressure for the Fed to start cutting interest rates.
Currently, market indicators suggest two interest rate cuts this year, each equivalent to a quarter of a percentage point. Recent encouraging inflation data has ignited market expectations for an interest rate cut this year, with a 60.3% chance that the Fed will cut the rate to 5-5.25% in September, according to the CME FedWatch tool.
With expectations growing for interest rate cuts towards the end of the year, consumer spending and the retail market could see some relief by the end of 2024.
Consumer confidence remains down
According to Reuters, consumer confidence in the United States has deteriorated as households have expressed concerns about inflation and income levels. The University of Michigan’s overall consumer confidence index came in at 65.6 for June, down from May’s final index of 69.1.
This could place additional constraints on the retail market and force consumers to reduce their discretionary spending, focusing more on essential purchases. Increasing debt levels and repayment obligations also help reduce discretionary spending.
Explore ETFs
Given the uncertainty surrounding interest rates, which are highly dependent on future inflation and economic data, investors remain skeptical about the performance of the retail market and consumer spending. Consumer spending could face additional challenges, given a greater reliance on credit cards, while banks simultaneously tighten access to credit.
Below, we’ve highlighted a few areas of ETFs that investors might consider in light of weak retail sales.
Winning domains
Consumer Staples ETF
This space is non-cyclical in nature and can stand out during periods of weak consumer spending.
The story continues
Select Consumer Staples Sector SPDR Fund (XLP) has gained 4.54% over the past three months.
Vanguard Consumer Staples ETF (VCC) has gained 4.24% over the past three months.
iShares US Consumer Staples ETF (IYK) has gained 3.07% over the past three months.
Losing zone
Consumer Discretionary ETF
Discretionary stocks are cyclical in nature and may underperform during periods of downturn in economic activities.
Consumer Discretionary Select Sector SPDR Fund (XLY) lost 4.47% over the last three months.
Vanguard Consumer Discretionary ETF (VCR) has lost 3.47% over the past three months.
First Trust AlphaDEX Consumer Discretionary Fund (FXD) has lost 1.13% over the past three months.
Food and Beverage ETF
According to Reuters, sales at food services and drinking places fell 0.4%, marking the biggest decline since January. Considered a crucial indicator of household finances, sales of food services and drinking places have declined in three of the last five months.
Invesco Food & Beverage ETF (PBJ) has lost 4.6% over the past three months.
First Trust Nasdaq Food & Beverage ETF (FTXG) has lost 3.6% over the past three months.
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SPDR Consumer Staples ETF (XLP): ETF Research Reports
Consumer Discretionary Sector SPDR ETF (XLY): ETF Research Reports
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
iShares US Consumer Staples ETF (IYK): ETF Research Reports
First Trust AlphaDEX Consumer Discretionary ETF (FXD): ETF Research Reports
Invesco Food & Beverage ETF (PBJ): ETF Research Reports
First Trust NASDAQ Food & Beverage ETF (FTXG): ETF Research Reports