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Has the Market Bottomed? Low P/E ETFs to Bounce Back
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The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. Overall, the S&P 500 is down 17.5% this year. The Nasdaq Composite is off 25.6%, the Dow Jones has lost about 14.4% while the Russell 2000 has skidded 18.4% year to date (as of Sep 13, 2022).
According to Ari Wald, head of technical analysis at Oppenheimer, we’re on the cusp of a turnaround right now, as quoted on TipRanks, published on Yahoo Finance. “Our analysis indicates September weakness is marking a final leg lower in the bear cycle, and a bullish opportunity for long-term investors,” Wald recently explained.
“In the post-war era, the majority of bear cycles have been long-and-shallow or short-and-sharp. We’ve only counted four long-and-deep declines (1968, 1973, 2000, and 2007), and believe market conditions are stronger now than they were in those outlier periods.”
Against this backdrop, below we highlight a few ETFs that have a low P/E and thus are prone to bounce back faster than their peers.
Financials stocks had unperformed the broader indexes earlier this year due to concerns that the Fed’s aggressive tightening campaign to tame inflation would push the economy into a recession. Results reported by six biggest US banks suggested that the economy could manage a “soft landing” while the Fed raises rates. Bank stocks have rebounded since mid-June as some investors believe that much of the bad news is already priced in and valuations look attractive at current levels (read: Financials ETFs: Can the Rebound Continue?).
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Value stocks fare better in a rising rate environment, which is the current scenario of U.S. economy.
First Trust NASDAQ Oil & Gas ETF (FTXN - Free Report) – P/E 9.27X; Zacks Rank #1
The underlying Nasdaq US Smart Oil & Gas Index is a modified factor weighted index, designed to provide exposure to US companies within the oil and gas industry. Oil prices increased considerably on Sep 5 as OPEC+ producers agreed a small oil output cut. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, decided to cut production targets by about 100,000 barrels per day from October. Energy analysts had mostly expected the group to stick with its production policy.
The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs, venture capital investments and merger and acquisitions (read: How Are Biotech ETFs Reacting to Q2 Earnings Releases?).
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Has the Market Bottomed? Low P/E ETFs to Bounce Back
The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. Overall, the S&P 500 is down 17.5% this year. The Nasdaq Composite is off 25.6%, the Dow Jones has lost about 14.4% while the Russell 2000 has skidded 18.4% year to date (as of Sep 13, 2022).
According to Ari Wald, head of technical analysis at Oppenheimer, we’re on the cusp of a turnaround right now, as quoted on TipRanks, published on Yahoo Finance. “Our analysis indicates September weakness is marking a final leg lower in the bear cycle, and a bullish opportunity for long-term investors,” Wald recently explained.
“In the post-war era, the majority of bear cycles have been long-and-shallow or short-and-sharp. We’ve only counted four long-and-deep declines (1968, 1973, 2000, and 2007), and believe market conditions are stronger now than they were in those outlier periods.”
Against this backdrop, below we highlight a few ETFs that have a low P/E and thus are prone to bounce back faster than their peers.
ETFs in Focus
First Trust Financials AlphaDEX ETF (FXO - Free Report) – P/E 8.01X; Zacks Rank #2 (Buy)
Financials stocks had unperformed the broader indexes earlier this year due to concerns that the Fed’s aggressive tightening campaign to tame inflation would push the economy into a recession. Results reported by six biggest US banks suggested that the economy could manage a “soft landing” while the Fed raises rates. Bank stocks have rebounded since mid-June as some investors believe that much of the bad news is already priced in and valuations look attractive at current levels (read: Financials ETFs: Can the Rebound Continue?).
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – P/E 8.22X; Zacks Rank #1 (Strong Buy)
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Value stocks fare better in a rising rate environment, which is the current scenario of U.S. economy.
First Trust NASDAQ Oil & Gas ETF (FTXN - Free Report) – P/E 9.27X; Zacks Rank #1
The underlying Nasdaq US Smart Oil & Gas Index is a modified factor weighted index, designed to provide exposure to US companies within the oil and gas industry. Oil prices increased considerably on Sep 5 as OPEC+ producers agreed a small oil output cut. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, decided to cut production targets by about 100,000 barrels per day from October. Energy analysts had mostly expected the group to stick with its production policy.
SPDR S&P Biotech ETF (XBI - Free Report) – P/E 12.39X; Zacks Rank #2
The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs, venture capital investments and merger and acquisitions (read: How Are Biotech ETFs Reacting to Q2 Earnings Releases?).