Inflation increased in August and continues to pose a significant challenge, prompting the Federal Reserve to raise interest rates for the first time in three years. Despite the persistent inflationary environment, the retail sector has continued to show resilience.
Consumer spending remained strong, helping retail sales post healthy growth in August. Against this backdrop, retail and discretionary funds are looking increasingly attractive. Investing in funds such as Fidelity Select Retailing Portfolio FSRPX and Fidelity Select Consumer Discretionary Portfolio FSCPX could be a smart move.
Retail Sales Gain Momentum
Retail sales increased 1.2% in August, marking the biggest monthly gain since March, after declining a revised 0.5% in July, the Commerce Department reported. July’s decline was the first in nine months, underscoring the sector’s strong performance earlier in the year.
The August increase also came in above the consensus estimate of 0.8% growth. On a year-over-year basis, retail sales advanced 0.6%. While higher gasoline prices contributed to some of the increase, consumers continued to spend heavily across a broad range of products.
Household spending remained firm despite elevated inflation, with producer and consumer prices both rising in August. Consumers were saving less while maintaining higher levels of spending. Non-store retailers led much of the monthly increase, with receipts climbing 2.6%.
Sales at vehicle and parts dealers rose 0.6%. Clothing store receipts increased 0.7%, helped by back-to-school shopping. Meanwhile, sales at food services and drinking places, the only services category included in the retail sales report, jumped 1.2%.
Retail sales excluding automobiles, gasoline, building materials and food services climbed 1.4% in August, marking the strongest increase since September 2024. The category had declined 0.4% in July.
The retail sales data came only days after the Federal Reserve increased interest rates by a quarter percentage point as it sought to bring down elevated inflation.
Still, the stronger retail sales figures highlight the resilience of the economy. Rising oil prices have contributed significantly to higher inflation as tensions in the Middle East persist. However, inflation could moderate once oil prices stabilize, potentially supporting the retail sector in the near term.
2 Best Choices
We have selected two 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:Â Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
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 12.4% and 3.6% 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 0.63%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer DiscretionaryPortfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionary goods. FSCPX 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 Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 12% and 4.6% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.68%, which is below the category average of 0.93%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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