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The S&P 500, the Nasdaq and the Dow Jones – all underperformed in the third quarter of 2023, having lost about 3.7%, 4.1% and 2.6%. But the fourth quarter normally doesn’t see turbulent trading as it includes all-important holiday season.
The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in fourth quarters over the past 10 years, trading positive 80% of the time.
Having said this, we would like to note that this year could be different as Middle East tensions rose at the start of October, which, in turn, boosted oil prices. The Fed is likely to enact a rate hike in November. Inflationary pressure, rising rate worries and economic slowdown fears are present.
Against this backdrop, below we highlight a few sector ETFs that could be great picks now.
Energy – Zacks Sector Rank #1 – United States Brent Oil ETF (BNO - Free Report)
Oil prices remained at a solid shape due to reduced supplies and ebbing U.S. recession fears. Oil futures touched a fresh 2023 high of more than $95 in late September after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums.
Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year.
In addition, the Israel’s war against Hamas has raised tensions in the Middle East, boosting oil prices in October. The chances of further chaos in oil patch will likely be determined by whether conflict spreads to the rest of the Middle East region, as Iran – which is both a key oil producer and a supporter of Hamas – is involved in the picture (read: 5 ETFs to Gain on Israel Attack).
Construction – Zacks Sector Rank #2 – iShares U.S. Infrastructure ETF (IFRA - Free Report)
The construction industry has displayed considerable resilience amid broader macroeconomic headwinds this year. Despite challenges in the U.S. economy, construction activity has continued to thrive, reinforced by various factors driving both residential and nonresidential construction spending. The nonresidential construction sector has seen steady improvement, with total outlays increasing for 15 months in a row.
In August, total construction outlays increased by 0.5%, marking the eighth successive month of improvement in 2023. Year-over-year, this amounts to a substantial 7.4% gain. This continued growth reflects the sector's robust performance, despite high inflation and interest rates (read: 4 ETFs to Tap the Upbeat U.S. Construction Sector).
Shares of defense companies surged amid the fighting in Israel and Gaza. The war included rockets, infiltrations, and the capture of soldiers, exacerbating tensions. Along with the renewed geopolitical crisis in the Middle East, cheaper valuation too should boost defense ETFs.
The sector has cheaper valuation with a forward P/E of 14.95X against the S&P 500’s P/E of 16.82X. The sector’s price-to-book and price-to-sales ratios are 2.17X and 1.16X, respectively. Both data stand cheaper against the S&P 500’s data of 4.38X and 2.38X, respectively.
Medical – Zacks Sector Rank #4 – Health Care Select Sector SPDR ETF (XLV - Free Report)
The sector boasts a safe-haven status amid market crisis. The tensions in Middle East and chances of another Fed rate hike this year caused global markets to be volatile. Against this backdrop, medical/healthcare investing makes sense.
The job growth in the sector remains decent. Employment in the healthcare industry increased by 41,000 in jobs in September, compared with the average monthly gain of 53,000 over the prior 12 months. Over the month, employment continued to go up in ambulatory health care services (+24,000), hospitals (+8,000), and nursing and residential care facilities (+8,000) (read: 3 Sector ETFs & Stocks to Bet on Upbeat September Jobs Data).
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4 Top-Ranked Sector ETFs to Buy Now
The S&P 500, the Nasdaq and the Dow Jones – all underperformed in the third quarter of 2023, having lost about 3.7%, 4.1% and 2.6%. But the fourth quarter normally doesn’t see turbulent trading as it includes all-important holiday season.
The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in fourth quarters over the past 10 years, trading positive 80% of the time.
Having said this, we would like to note that this year could be different as Middle East tensions rose at the start of October, which, in turn, boosted oil prices. The Fed is likely to enact a rate hike in November. Inflationary pressure, rising rate worries and economic slowdown fears are present.
Against this backdrop, below we highlight a few sector ETFs that could be great picks now.
Energy – Zacks Sector Rank #1 – United States Brent Oil ETF (BNO - Free Report)
Oil prices remained at a solid shape due to reduced supplies and ebbing U.S. recession fears. Oil futures touched a fresh 2023 high of more than $95 in late September after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums.
Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year.
In addition, the Israel’s war against Hamas has raised tensions in the Middle East, boosting oil prices in October. The chances of further chaos in oil patch will likely be determined by whether conflict spreads to the rest of the Middle East region, as Iran – which is both a key oil producer and a supporter of Hamas – is involved in the picture (read: 5 ETFs to Gain on Israel Attack).
Construction – Zacks Sector Rank #2 – iShares U.S. Infrastructure ETF (IFRA - Free Report)
The construction industry has displayed considerable resilience amid broader macroeconomic headwinds this year. Despite challenges in the U.S. economy, construction activity has continued to thrive, reinforced by various factors driving both residential and nonresidential construction spending. The nonresidential construction sector has seen steady improvement, with total outlays increasing for 15 months in a row.
In August, total construction outlays increased by 0.5%, marking the eighth successive month of improvement in 2023. Year-over-year, this amounts to a substantial 7.4% gain. This continued growth reflects the sector's robust performance, despite high inflation and interest rates (read: 4 ETFs to Tap the Upbeat U.S. Construction Sector).
Aerospace – Zacks Sector Rank #3 – iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
Shares of defense companies surged amid the fighting in Israel and Gaza. The war included rockets, infiltrations, and the capture of soldiers, exacerbating tensions. Along with the renewed geopolitical crisis in the Middle East, cheaper valuation too should boost defense ETFs.
The sector has cheaper valuation with a forward P/E of 14.95X against the S&P 500’s P/E of 16.82X. The sector’s price-to-book and price-to-sales ratios are 2.17X and 1.16X, respectively. Both data stand cheaper against the S&P 500’s data of 4.38X and 2.38X, respectively.
Medical – Zacks Sector Rank #4 – Health Care Select Sector SPDR ETF (XLV - Free Report)
The sector boasts a safe-haven status amid market crisis. The tensions in Middle East and chances of another Fed rate hike this year caused global markets to be volatile. Against this backdrop, medical/healthcare investing makes sense.
The job growth in the sector remains decent. Employment in the healthcare industry increased by 41,000 in jobs in September, compared with the average monthly gain of 53,000 over the prior 12 months. Over the month, employment continued to go up in ambulatory health care services (+24,000), hospitals (+8,000), and nursing and residential care facilities (+8,000) (read: 3 Sector ETFs & Stocks to Bet on Upbeat September Jobs Data).