The retail sector has been struggling for a long time but has been trying to hold its ground. However, the situation appears to be improving as retail sales made a solid rebound in July on easing price pressures.

The Commerce Department reported last week that retail sales jumped a solid 1% in July after declining 0.2% in June. The July numbers also came in sharply higher than the economists’ expectation of a rise of 0.3%.

Retail sales, excluding gasoline, food, building materials and automobiles grew 0.3% month over month in July after rising 0.9% in June. On a year-over-year basis, retail sales climbed 2.7% in July, while total sales from May through July rose 2.4% from the year-ago levels.

July’s increase in retail sales was driven by a robust 3.6% rise in sales at motor vehicle and auto parts dealers. Electronics and appliance store sales grew by 1.6% in July.

Online sales saw a 0.2% rise in July, following a 2.2% increase in June. The strong consumer spending helped boost retail sales in July, potentially easing recession concerns that had been raised earlier in the month due to a disappointing jobs report and a rise in the unemployment rate.

Inflation has been slowing over the past quarter, with a slight uptick in the consumer price index (CPI) in July. The CPI increased by 2.9% year over year in July, down from a 3% increase in June. This marked the slowest pace of increase since March 2021.

The impressive retail sales report and a decline in inflation have raised hopes that the Fed will start its rate cuts in September. Investors are expecting at least a 100-basis-point rate cut this year.

Lower interest rates bode well for the retail sector and the broader economy.

3 Best Choices

We have selected three mutual funds with significant exposure to the retail and discretionary sectors. The funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).