U.S. consumer confidence has significantly improved from last month. A major interest rate cut announced by the Federal Reserve last month eased fears of a slowing economy. Also, optimism surrounding another rate cut in November is giving a boost to consumer confidence and fueling a Wall Street Rally.
The positive outlook makes it an opportune time to invest in retail and discretionary funds such as Fidelity Select Leisure Portfolio FDLSX, Fidelity Select Consumer Staples Portfolio FDFAX and Fidelity Select Retailing Portfolio FSRPX.
Consumer Confidence Surges in October
Earlier this week, the Conference Board said that the consumer confidence index rose to 108.7 in October from 99.2 in September, hitting its highest level in nine months. The Present Situation Index, which gauges consumers' views on current business and labor market conditions, also increased by 14.2 points to hit 138.
The Expectations Index, reflecting consumers' short-term outlook on income, business and job prospects, climbed 6.3 points to 89.1, well above the 80 threshold that signals an impending recession.
The rise in October follows a sharp decline in consumer confidence in September, driven by concerns over a slowing economy. Notably, confidence remained strong in October, despite data indicating a softening job market.
The Labor Department reported that job openings sharply declined to a three-and-a-half-year low in September. However, the Conference Board's survey indicated that consumers' views of the job market improved, which helped in boosting their confidence.
Future Rate Cut Hopes Boost Consumer Confidence
Markets have been on a rally over the past month after the Federal Reserve announced a 50-basis point rate cut in September, marking its first interest rate cut since March 2020. However, a slight uptick in September inflation raised fears of a slowing economy. This has led to volatility in markets but consumers are still confident that inflation is on track to reach the Fed’s 2% target.
The Federal Reserve also has maintained a dovish tone over the past couple of months and has suggested that more rate cuts may be forthcoming if inflation continues to decline significantly.
The CME FedWatch tool currently indicates a 96.1% probability of a 25-basis point cut in November and a 69.7% chance of a 20-basis point cut in December. Lower borrowing rates generally favor growth assets, particularly in the tech and consumer discretionary sectors.
3 Best Choices
As a result, we've chosen three funds from the retail and discretionary sectors that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.
Fidelity Select Leisure & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 10% and 13.6% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.73%, which is lower than the category average of 0.99%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of its assets in securities of companies primarily engaged in manufacturing, marketing, or distribution of consumer staples products. Fidelity Select Consumer Staples Portfolio fund invests in both U.S. and non-U.S. issuers.
Fidelity Select Consumer Staples Portfolio has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 8.3% and 9.2% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.72%, which is lower than the category average of 0.94%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.
Fidelity Select Retailing Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 3.9% and 13.2% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.71%, which is lower than the category average of 0.99%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
