U.S. consumer confidence rebounded in August as cooling inflation and a spate of positive economic data boosted rate-cut hopes. Fears of an imminent recession have alleviated over the past few weeks and consumers are a lot more confident about the economy’s future.

Rate cuts in the coming months are likely to give a boost to the economy as it will give consumers more spending power. Given this situation, it would be ideal to invest in retail and discretionary funds like Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) and Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) .

Consumer Confidence Hits Six-Month High

On Aug. 27, the Conference Board reported that U.S. consumer confidence surged to 103.3 in the month, up from a revised 101.9 in July, hitting its highest level in six months. This figure also exceeded the consensus forecast of 100.3.

The Present Situation Index, which measures consumers' views on current business and labor market conditions, increased to 134.4 in August from 133.1 in July.

The Expectations Index, which assesses consumers' short-term outlook on income, business and labor market conditions, rose to 82.5 from 81.1 in July, reaching its highest level since August 2023.

This is the second month in a row that the index has stayed above 80. Any reading below 80 typically signals a potential recession.

Cooling Inflation Boosts Confidence

Earlier this month, Wall Street was gripped by fears of a potential recession, leading to a massive selloff. However, recent economic data released over the past three weeks has shown that the economy remains robust, erasing those concerns.

Inflation has been easing in recent months, which has prompted the Federal Reserve to hint at potential rate cuts. Last week, Fed Chairman Jerome Powell suggested that rate reductions could be forthcoming as officials believe that inflation is declining sharply and is on track to achieve the Fed’s 2% target.

Markets are now anticipating a 25-basis-point rate cut in September, with some expecting even a 50-basis-point reduction. Lower borrowing rates generally benefit growth stocks, such as those in the tech and consumer discretionary sectors.

3 Retail, Discretionary Funds to Gain

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).

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 0.8% and 12.4% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is lower than the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX 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 Leisure & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 7.3% and 10.7% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.73%, which is lower than the category average of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of its assets in securities of companies primarily engaged in manufacturing, marketing, or distribution of consumer staples products. Fidelity Select Consumer Staples Portfolio fund invests in both U.S. and non-U.S. issuers.

Fidelity Select Consumer Staples Portfolio has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 4.1% and 8% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.72%, which is lower than the category average of 0.94%.

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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