NEW YORK (TheStreet) -- As consumer confidence strengthens, global economies grow and capital spending in corporate America increases as expected, the semiconductor industry and its exchange-traded funds are likely to reap the benefits.

According to the latest data from the Conference Board, its index of consumer confidence increased for the third month in a row to its highest level in two years. This indicates that consumers are starting to see the light at the end of the tunnel and are hopeful that the nation's economy will stabilize and show signs of growth.

As this trend continues to emerge, consumers will likely increase spending, which was recently seen in the personal computer market. According to research firm IDC, shipments of personal computers to the United States jumped by 24% in the past quarter and is expected to continue to show signs of prosperity. This jump in personal computer demand will likely benefit the semiconductor industry.

Additionally, increases in capital spending by domestic corporations are likely to add to the sectors appeal. According to the Philadelphia Federal Reserve Bank's monthly index of manufacturing, businesses are expected to increase manufacturing capital spending. Similar trends have been seen in New York banks, where the New York capital expenditure index jumped to a 33.33 last month, rising to the highest level in over 30 months.

This trend is likely to continue, as the Institute for Supply Chain Management index rose to its highest level August 2004 for a sixth-straight month of expansion. In fact, Texas Instruments ( TXN), the second-largest U.S. chipmaker, recently announced that it will spend nearly $1 billion to expand operations to keep up with increased demand.

Overall, increased capital spending is beneficial to chip makers and some suggest that capital expenditures will rise by over 14% in the coming year. From a global perspective, increases in demand by developing nations, in particularly China, is expected to further boost semiconductors.

Some ETFs to consider:

  • PowerShares Dynamic Semiconductors ( PSI), which holds Micron Technology ( MU) and Maxim Integrated Products ( MXIM) in its top holdings. PSI closed at $12.18 on Monday

  • iShares S&P GSTI Semiconductor ( IGW), which holds Applied Materials ( AMAT) and Broadcom Corporation ( BRCM) in its top holdings. IGW closed at $44.44 on Monday.

  • Semiconductors HOLDRs ( SMH), which boasts Intel ( INTC) and Texas Instruments as its top holdings. SMH closed at $25.30 on Monday.

    Although there are numerous positive forces that are likely to boost chip-makers, a hiccup in the expected economic recovery and other risks could cause these equities to decline in value. A good way to protect against these risks is through the use and implementation if an exit strategy that triggers price points at which an upward trend could potentially be coming to an end.

    According to the latest data at www.SmartStops.net , the price points for the aforementioned ETFs are PSI at $11.57; IGW at $42.83; SMH at $24.45. These price points fluctuate on a daily basis and reflect changes in market conditions. Updated data can be found at www.SmartStops.net.

    Written by Kevin Grewal in Laguna Niguel, Calif.

    Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.

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