Friday’s ETF To Watch: Consumer Discretionary ETF (VCR)

by on September 17, 2010 | ETFs Mentioned:

Domestic markets have hit their fair share of turbulence this year and are now having trouble maintaining a steady growth pattern heading into the fall. Many had hoped that the economy would be well on its way to recovery by this point in the year, but the future still has a hazy outlook as unemployment levels remain dangerously high. But September has turned some heads, as markets may finally be trending upwards, as evidenced by the early September surge in equities. Though markets may appear to be making a turnaround, they are still quite volatile, hinging on news like central bank meetings or government data releases [see also Why Frontier Market ETFs Are Not As Risky As You Might Think].

This trend looks likely to continue today as the University of Michigan releases its consumer confidence report for the month of September. This report is valued as one of the most important indicators of the U.S. consumer segment, thanks to its quick turnaround and widespread data pool. The report takes into account personal finances, business conditions, and the purchasing power of individuals based on a large number of telephone surveys. Last month, the confidence level sat at 68.9, while this report is expected to see the figure rise modestly up to 70 [see also Retail ETFs Slaughtered By Weak Data].

A higher consumer confidence would be great news for equity markets. A strong result suggests that consumer buying power, as well as spending, is likely to increase, which could nudge the overall economy in the right direction. But if the report does not come in as expected, it could mean disaster for markets. A low consumer confidence level would point to falling wages and consumer spending alike. With investors, traders, and retailers all closely watching the release of this report, a negative result will create a blow-back for markets to finish out the week [see also Are Toilet Paper Sales Signaling A Strong Recovery?].

With all eyes on the data from this esteemed university, the Vanguard Consumer Discretion ETF (VCR) should be active in Friday trading. The fund consists of U.S. companies of all sizes that fall into the consumer discretionary sector. Top holdings in the ETF include McDonald’s, Home Depot,, and Lowe’s. With over 375 holdings, VCR has turned in a strong performance this year, gaining more than 10% [see all of VCR's fundamentals here]. With many of the holdings of this ETF being companies that rely directly on consumer spending power, it will be particularly impacted by this report in trading today. A strong or as expected report will likely boost the fund, as it will paint a positive future for its holdings. But if the report comes in light, look for VCR to take a hit on the day.

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Disclosure: No positions at time of writing.