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Consumers in the United States have been spending quite freely despite high interest rates. Higher wages and a steady rise in personal income are boosting consumer spending.
The Commerce Department reported on Jun 28 that personal income rose 0.5% in May after increasing 0.3% in the prior month. Also, wages increased a solid 0.7% in May. Disposable personal income, which is calculated after paying taxes, also increased 0.5% in May.
The personal savings rate rose 3.9% sequentially in May after a 3.7% increase in April.
Consumer spending increased 0.2% after declining 0.5% in April. The jump in consumer spending comes in May as prices of goods saw the biggest decline in the past six months. This saw consumer spending on goods rebounding in May. Spending on goods increased 0.2% in May, higher than the 0.1% rise in April.
Inflation increased in the first quarter, raising concerns over the economy’s health. However, a decline in inflation in April and May has given consumers the confidence to spend freely.
The personal consumption expenditure (PCE) reading came in unchanged in May after increasing 0.3% in April. Year over year, the PCE price index climbed 2.6% in May after increasing 2.7% in the prior month.
The Federal Reserve also hinted at one rate cut this year. However, a single rate cut is good news, given that several market participants had started believing that the Federal Reserve would not go for any rate cut this year.
Moreover, the first rate cut is also an indication of the beginning of the rate cut cycle. This definitely bodes well for the economy, as lower interest rates will allow consumers to spend more lavishly.
3 Best Choices
Given this scenario, 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).