Despite a weak start, the holiday season gained a firmer footing. This is especially true given the modest retail sales data for November and an improved consumer sentiment data for December.
After months of sluggish spending, retail sales rose a modest 0.2% in November, representing the largest increase since July. Meanwhile, consumer confidence improved for the third consecutive month in December, with the preliminary University of Michigan sentiment index reading 91.8, up from 91.3 in November (read: 5 ETFs for Loads of Holiday shopping Delight).
Solid job additions, slowly rising wages and cheap fuel are providing consumers extra money to spend on a wide range of products including electronics and appliances, clothing, sporting goods and books, and at restaurants and bars. In particular, spending increased 0.8% on clothing, 0.6% on electronics and appliances, and 0.8% at sporting goods and hobby stores.
The strong trend is likely to continue for the rest of the holiday shopping season given an improving U.S. economy, a recovering housing market and stepped-up service activities. The National Retail Federation (NRF) expects total holiday sales in November and December (excluding autos, gas and restaurant) to grow at a solid pace of 3.7%. Though this marks a deceleration from last year's growth rate of 4.1%, it is well above the 10-year average of 2.5%.
Investors should note that online sales have superseded brick-and-mortar retail sales this year with mobile shopping playing a crucial role. Online sales are projected to grow 6–8% to $105 billion. ComScore expects online sales to jump 14% year over year to $70.06 billion for the full holiday season (November and December), outpacing the growth of brick-and-mortar retail sales.
Given the holiday cheer, investors should cycle into the consumer discretionary space in order to obtain a nice momentum play. While looking at individual companies is certainly an option, a focus on the top-ranked consumer discretionary ETFs could be a less risky way to tap into the same broad trends (see: all the Consumer Discretionary ETFs here).
Top Ranked Consumer Discretionary ETF in Focus
We have found a number of ETFs that have the top Zacks ETF Rank of 1 or ‘Strong Buy' rating in this space and are thus expected to outperform in the months to come (see: all the Top Ranked ETFs).
While all the top-ranked ETFs are likely to outperform, the following four funds could be good choices. These funds have enjoyed a strong momentum and have potentially superior weighting methodologies that could allow them to continue leading the consumer space in the coming months.
PowerShares DWA Consumer Cyclicals Momentum Portfolio (PEZ – ETF report)
