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After registering the best month in more than decades, Wall Street fell into the trap of historically sluggish September trading, with the major indices seeing a blood bath in the last two sessions (read: ETF Winners & Losers From Wall Street's Worst Day Since June).
Most of the decline came from a sharp sell-off in high-flying technology stocks as investors jumped in to book profits. Additionally, concerns over lofty valuations, deadlock in another financial-aid package, budget negotiations and election uncertainty added to the chaos. Additionally, September is historically a weak month for the stock market due to seasonal phenomenon.
Per the LPL Financial data, the S&P 500 has fallen about 1% on average in September since 1950. It also revealed that the index has shed 0.2% on average in the election year. This election year could be worse given that the COVID-19 pandemic continues to rage globally. Since World War II, the S&P 500 has seen an average decline of 0.5%, according to CFRA (read: Top-Ranked Mid-Cap ETFs Set to Defy September Curse).
The volatility is expected to continue this year given the tightening presidential race. Per the latest data from RealClearPolitics, Democratic nominee Joe Biden's lead over President Donald Trump has significantly narrowed.
However, the euphoria surrounding COVID-19 vaccine and continued support from the Federal Reserve would offer upside to the stocks. Further, encouraging data indicating that the American economy is gradually returning to the pre-pandemic level and that COVID-19 cases are moderating will add to the strength. The latest jobs data, which showed that the economy added 1.4 million jobs in August and unemployment rate dropped to 8.4% from 10.2%, is a clear sign of improving economy.
Given the sharp decline in the stock market over the past couple of days, investors should take advantage of the beaten-down prices. For them, we have highlighted five solid ETF picks that were in deep red over the couple of days but have a solid upside potential. All these have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
WisdomTree Cloud Computing Fund (WCLD - Free Report) – Down 11.8%
This ETF offers exposure to emerging and fast-growing U.S.-listed companies (including ADRs) are primarily focused on cloud software and services, and follows the BVP Nasdaq Emerging Cloud Index. It holds 54 stocks in its basket and charges investors 45 bps in fees per year. The product has amassed $692.4 million in its asset base and trades in average daily volume of 814,000 shares. It has a Zacks ETF Rank #2 (read: Why Cloud Computing Stocks & ETFs Soared This Year).
This fund offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 28 stocks in the basket. American firms dominate with half of the fund’s portfolio, followed by China (22.1%) and Germany (6.9%). The product has amassed $1.2 billion in its asset base and trades in a solid volume of around 708,000 shares a day. It charges investors 71 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook (read: Why Clean Energy ETFs Are Top Performers in 2020).
SPDR S&P Internet ETF – Down 8.7%
This product provides exposure to the Internet segment of the broad technology sector. It follows the S&P Internet Select Industry Index, holding 43 stocks in its basket. The ETF charges 35 bps in annual fees and trades in volume of 9,000 shares. With AUM of $35 million, the fund carries a Zacks ETF Rank #2.
This fund targets the semiconductor corner of the broad technology market and tracks the Dynamic Semiconductor Intellidex Index. It holds 32 securities in its basket. The product has AUM of $273.7 million and sees moderate average daily volume of 30,000 shares. Expense ratio is 0.58%. PSI has a Zacks ETF Rank #1 with a High risk outlook (read: Semiconductor ETFs Shining Bright Amid Coronavirus Crisis).
This ETF provides exposure to software companies in the technology and communication services sectors by tracking the S&P North American Expanded Technology Software Index. Holding a basket of 100 securities, the fund charges 46 bps in annual fees and has AUM of $5 billion. Volume is good as it exchanges 995,000 shares a day. IGV has a Zacks ETF Rank #1 with a High risk outlook.
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Beaten-Down ETFs to Buy After Market Rout
After registering the best month in more than decades, Wall Street fell into the trap of historically sluggish September trading, with the major indices seeing a blood bath in the last two sessions (read: ETF Winners & Losers From Wall Street's Worst Day Since June).
Most of the decline came from a sharp sell-off in high-flying technology stocks as investors jumped in to book profits. Additionally, concerns over lofty valuations, deadlock in another financial-aid package, budget negotiations and election uncertainty added to the chaos. Additionally, September is historically a weak month for the stock market due to seasonal phenomenon.
Per the LPL Financial data, the S&P 500 has fallen about 1% on average in September since 1950. It also revealed that the index has shed 0.2% on average in the election year. This election year could be worse given that the COVID-19 pandemic continues to rage globally. Since World War II, the S&P 500 has seen an average decline of 0.5%, according to CFRA (read: Top-Ranked Mid-Cap ETFs Set to Defy September Curse).
The volatility is expected to continue this year given the tightening presidential race. Per the latest data from RealClearPolitics, Democratic nominee Joe Biden's lead over President Donald Trump has significantly narrowed.
However, the euphoria surrounding COVID-19 vaccine and continued support from the Federal Reserve would offer upside to the stocks. Further, encouraging data indicating that the American economy is gradually returning to the pre-pandemic level and that COVID-19 cases are moderating will add to the strength. The latest jobs data, which showed that the economy added 1.4 million jobs in August and unemployment rate dropped to 8.4% from 10.2%, is a clear sign of improving economy.
Given the sharp decline in the stock market over the past couple of days, investors should take advantage of the beaten-down prices. For them, we have highlighted five solid ETF picks that were in deep red over the couple of days but have a solid upside potential. All these have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
WisdomTree Cloud Computing Fund (WCLD - Free Report) – Down 11.8%
This ETF offers exposure to emerging and fast-growing U.S.-listed companies (including ADRs) are primarily focused on cloud software and services, and follows the BVP Nasdaq Emerging Cloud Index. It holds 54 stocks in its basket and charges investors 45 bps in fees per year. The product has amassed $692.4 million in its asset base and trades in average daily volume of 814,000 shares. It has a Zacks ETF Rank #2 (read: Why Cloud Computing Stocks & ETFs Soared This Year).
Invesco Solar ETF (TAN - Free Report) – Down 9.6%
This fund offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 28 stocks in the basket. American firms dominate with half of the fund’s portfolio, followed by China (22.1%) and Germany (6.9%). The product has amassed $1.2 billion in its asset base and trades in a solid volume of around 708,000 shares a day. It charges investors 71 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook (read: Why Clean Energy ETFs Are Top Performers in 2020).
SPDR S&P Internet ETF – Down 8.7%
This product provides exposure to the Internet segment of the broad technology sector. It follows the S&P Internet Select Industry Index, holding 43 stocks in its basket. The ETF charges 35 bps in annual fees and trades in volume of 9,000 shares. With AUM of $35 million, the fund carries a Zacks ETF Rank #2.
Invesco Dynamic Semiconductors ETF (PSI - Free Report) – Down 8.5%
This fund targets the semiconductor corner of the broad technology market and tracks the Dynamic Semiconductor Intellidex Index. It holds 32 securities in its basket. The product has AUM of $273.7 million and sees moderate average daily volume of 30,000 shares. Expense ratio is 0.58%. PSI has a Zacks ETF Rank #1 with a High risk outlook (read: Semiconductor ETFs Shining Bright Amid Coronavirus Crisis).
iShares Expanded Tech-Software Sector ETF (IGV - Free Report) – Down 8.2%
This ETF provides exposure to software companies in the technology and communication services sectors by tracking the S&P North American Expanded Technology Software Index. Holding a basket of 100 securities, the fund charges 46 bps in annual fees and has AUM of $5 billion. Volume is good as it exchanges 995,000 shares a day. IGV has a Zacks ETF Rank #1 with a High risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>