Retail sales slowed in September, but the sector’s northbound journey continued. The sector has shown immense resilience over the past several months despite inflationary pressures and rising prices.
The Federal Reserve has reduced interest rates twice since September and is widely expected to implement another cut in December, which could further boost the sector. Also, the ongoing holiday season is likely to drive consumer spending and help the retail sector.
Given this situation, retail and discretionary funds are looking increasingly attractive for investment. Funds such as Fidelity Select Retailing Portfolio FSRPX and Fidelity Select Consumer Discretionary Portfolio FSCPX could be smart investments.
Total retail sales for September reached $733.3 billion, up 0.2% month over month and 4.3% year over year, the Commerce Department said last week. While this fell short of the consensus estimate of 0.4% rise, the sector has shown steady growth in 2025, with total retail sales from July through September up 4.5% on a year-over-year basis.
This came after a 0.6% rise in retail sales in August. Factors such as a weak labor market and a four-year-high unemployment rate contributed to the slower growth in September, along with higher goods prices.
The Fed’s two rate cuts of 25 basis points in September and October have somewhat eased the burden on consumers, though inflation remains elevated and consumers continue to spend cautiously. Markets now price an 87.2% probability of another 25-basis-point cut in December, according to the CME FedWatch Tool.
The holiday shopping season has also started on a positive note. Online sales, driven by AI, surged on Black Friday, with shoppers spending a record $11.8 billion, a 9.1% increase year-over-year, according to an Adobe Analytics report cited by Reuters.
Also, Mastercard SpendingPulse reported a 10.4% year-over-year jump in online sales on Black Friday, while in-store sales grew only 1.7%. This solid start suggests that the holiday season may continue to support retail growth in the coming weeks.
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.