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Wall Street has rallied hard this year on vaccine and fiscal stimulus optimism. But gains have not been equal in every segment as the rally has been supported by cheap value stocks that bet big on faster-than-expected economic normalcy.
SPDR Portfolio S&P 500 Value ETF SPYV is up 11.3% this year versus 5% advancement in the S&P 500 and 1.4% gains in the S&P 500 growth counterpart (SPYG - Free Report) . A favorable operating backdrop, rise in bond yields and damn-cheap valuation are leading value stocks higher. Investors should note that value stocks tend to do well in a rising rate environment. A major chunk of this segment is formed by financials which is a rising rate beneficiary.
Notably, big three U.S. equity indexes — SPDR S&P 500 ETF (SPY - Free Report) , Nasdaq-100 ETF Invesco QQQ (QQQ - Free Report) and SPDR Dow Jones Industrial Average ETF (DIA - Free Report) — have a P/E of 25.16X, 35.32X and 23.05X, respectively. We have highlighted below a few sectors and related ETFs that offer lower P/E ratios than SPY and QQQ. These sectors are also great beneficiaries of economic reopening.
Financials
With the Fed being dovish and risk-on sentiments boosting long-term yields, the yield curve will steepen further. The biggest winner of the steepening yield curve is the financial sector. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This expands net margins and increase banks’ profits. Bargain hunting could also lead to some gains.
Economic reopening means more activities and more industrial production.The industrial sector, which faced disruption in global supply chains, is expected to rebound fast on economic normalcy. About 21,000 manufacturing jobs were created in February (read: 4 Sector ETFs to Sizzle on Solid February Jobs Data).
A dovish Fed, fiscal stimulus under the Biden administration, $1400-stimulus checks, still-low oil prices, moderate inflation, ebbing health as well as financial risks with accelerated COVID-19 vaccination will make the case for discretionary investing quite apt now. Notably, U.S. retail sales barring automotive and gasoline increased 4.6% year over year in February after an adjustment for Leap Year, according to Mastercard SpendingPulse. Online sales surged 54.7% from 2020. Mastercard SpendingPulse takes into account in-store and online retail sales across all forms of payment (read: Top-Performing ETF Areas of Last Week).
The sector has suffered a lot amid COVID-19 lockdown as tenants failed to pay rents regularly. However, things have been improving now.The rise in cost of shelter is a plus for the real estate stocks and ETFs. The moderate inflation trend also points to the fact that bond yields should rise in the coming days at a moderate pace. Modest gains in rates also back a likely real estate rally.
Global X SuperDividend REIT ETF (SRET - Free Report) – 10.08X
IQ US Real Estate Small Cap ETF (ROOF - Free Report) – 13.10X
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4 Sectors & Their ETFs Offering Great Value Now
Wall Street has rallied hard this year on vaccine and fiscal stimulus optimism. But gains have not been equal in every segment as the rally has been supported by cheap value stocks that bet big on faster-than-expected economic normalcy.
SPDR Portfolio S&P 500 Value ETF SPYV is up 11.3% this year versus 5% advancement in the S&P 500 and 1.4% gains in the S&P 500 growth counterpart (SPYG - Free Report) . A favorable operating backdrop, rise in bond yields and damn-cheap valuation are leading value stocks higher. Investors should note that value stocks tend to do well in a rising rate environment. A major chunk of this segment is formed by financials which is a rising rate beneficiary.
Notably, big three U.S. equity indexes — SPDR S&P 500 ETF (SPY - Free Report) , Nasdaq-100 ETF Invesco QQQ (QQQ - Free Report) and SPDR Dow Jones Industrial Average ETF (DIA - Free Report) — have a P/E of 25.16X, 35.32X and 23.05X, respectively. We have highlighted below a few sectors and related ETFs that offer lower P/E ratios than SPY and QQQ. These sectors are also great beneficiaries of economic reopening.
Financials
With the Fed being dovish and risk-on sentiments boosting long-term yields, the yield curve will steepen further. The biggest winner of the steepening yield curve is the financial sector. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This expands net margins and increase banks’ profits. Bargain hunting could also lead to some gains.
iShares U.S. Regional Banks ETF (IAT - Free Report) – 12.72X
SPDR S&P Bank ETF (KBE - Free Report) – 14.15X
Industrials
Economic reopening means more activities and more industrial production.The industrial sector, which faced disruption in global supply chains, is expected to rebound fast on economic normalcy. About 21,000 manufacturing jobs were created in February (read: 4 Sector ETFs to Sizzle on Solid February Jobs Data).
Industrial Select Sector SPDR Fund (XLI - Free Report) – 24.98X
iShares U.S. Aerospace & Defense ETF (ITA - Free Report) – 19.37X
Consumer Discretionary
A dovish Fed, fiscal stimulus under the Biden administration, $1400-stimulus checks, still-low oil prices, moderate inflation, ebbing health as well as financial risks with accelerated COVID-19 vaccination will make the case for discretionary investing quite apt now. Notably, U.S. retail sales barring automotive and gasoline increased 4.6% year over year in February after an adjustment for Leap Year, according to Mastercard SpendingPulse. Online sales surged 54.7% from 2020. Mastercard SpendingPulse takes into account in-store and online retail sales across all forms of payment (read: Top-Performing ETF Areas of Last Week).
SPDR S&P Retail ETF (XRT - Free Report) – 15.57X
First Trust Nasdaq Retail ETF – 18.03X
Real Estate
The sector has suffered a lot amid COVID-19 lockdown as tenants failed to pay rents regularly. However, things have been improving now.The rise in cost of shelter is a plus for the real estate stocks and ETFs. The moderate inflation trend also points to the fact that bond yields should rise in the coming days at a moderate pace. Modest gains in rates also back a likely real estate rally.
Global X SuperDividend REIT ETF (SRET - Free Report) – 10.08X
IQ US Real Estate Small Cap ETF (ROOF - Free Report) – 13.10X
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 >>