Consumer ETFs To Perk Up In 2018 On Wage Hikes?

As soon as the tax reform got into effect, a flurry of wage hikes and bonus payments started showing up. The tax bill cuts “the corporate rate from 35% to 21%, gives pass-through businesses like the Trump Organization a 20% tax deduction, raises the standard deduction, expands the child tax credit, and temporarily lowers individual rates across the board (read: Tax Bill: What ETF Investors Need to Know).”

The Trump administration is also proposing a move from the current worldwide tax system to a territorial system, allowing companies to send their offshore profits back to the United States without extra taxes. This will result in extra cash, which may prove beneficial for shareholder-value maximization.

Per a Tax Policy Center analysis, the bill will lower taxes for Americans in all income groups in 2018, but increase after-tax income by an average of 2.2%. However, the tax cut for individuals will gradually decrease over time and close completely in 2025.

For individuals, the final version keeps the seven tax brackets intact but lowers the rates for most others. The new tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37% compared with the current structure of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The framework offers tax relief to middle-class families by doubling the standard deduction to $12,000 for single filers and $24,000 for a married couple filing jointly (read: ETFs to Bet on the Final Tax Bill: What Hot, What's Not).

Impact on Consumers

Since corporates will be benefiting from steep cuts, an increasing number of companies are paying one-time cash bonuses. Many employers are boosting wages. And a certain group of companies say that they will raise matching contributions to workers' 401(k) plans.

Walmart announced recently that it plans to hike the starting pay for hourly workers to $11 and pay up to $1,000 in a one-time cash bonus to suitable associates based on seniority. As per an article published on usatoday.com, many reputed U.S. companies including AT&T (NYSE:T) , Alaska Airlines (NYSE:ALK) , American Airlines (NASDAQ:AAL) , Bank of America (NYSE:BAC) , JetBlue (NASDAQ:JBLU) , PNC Financial (NYSE:PNC) and Walmart (NYSE:T) have announced bonuses.

The source went on to explain that BB&T (NYSE:BBT) also increased the minimum hourly pay rate from $12 to $15, effective Jan 1, 2018. Fifth Third Bank hiked the minimum wage to $15 per hour for all employees while PNC Financial will raise the minimum pay rate to $15 an hour by the end of 2018.

Added to this, companies like Visa (NYSE:V) and Aflac Inc (NYSE:AFL) have announced that they are taking steps to help employees save for retirement. These companies are “boosting matching contributions to employees' 401(k) retirement plans.”

Consumer ETFs in Focus

The dual effect of wage hike and tax cuts should translate into higher disposable income for consumers. As a result, consumer ETFs should be investors’ top focus. iShares U.S. Consumer Services ETF IYC, First Trust Consumer Discretionary AlphaDEX Fund FXD, and PowerShares S&P SmallCap Consumer Discretionary Portfolio PSCD, each carrying a Zacks ETF Rank #2, should thus be great picks (read: E-Commerce Face-Off: Wal-Mart Vs. Amazon (NASDAQ:AMZN) ETFs).

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