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4 ETFs to Play the Hot Events of Q4

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The S&P 500 posted its best third-quarter gains since 2010 with an advancement of 8.5%. The gains could continue as the October-December period is normally gainful for the market. CNBC polled dozens of Wall Street investors and strategists to know their view on the fourth quarter. About half of respondents said the S&P 500 will gain in the final quarter of 2020 (read: S&P 500's Best Q3 Since 2010: Top ETFs & Stocks).

The S&P 500 rises about 4.3% in the fourth quarter, per Barron’s, making it the best quarter of the year. “Over the past three decades back to 1989, the Dow (4.3%), S&P (3.6%) and Nasdaq (4.7%) all show gains in the fourth quarter, according to Kensho, and trade positive 75%–80% of the time,” per a CNBC article.

Key Events Scheduled for Q4

Holiday Season: The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.

Deloitte expects sales to increase between 1% and 1.5% from a year ago, as quoted on CNBC. That’s compared with growth of 4.1% in 2019, when sales were about $1.14 trillion. Lower wage earners remained skeptical about their finances and health, and will be less prone to indulge in discretionary buying.

However, sales may gain in the range of 2.5% to 3.5% if more affluent consumers gain confidence in the back half of 2020. If there is strong vaccine hope, government stimulus check and meaningful uptick in employment, the Holiday season may be merrier for the economy.

Presidential Election: The fourth quarter of this year is scheduled for U.S. presidential election. Democratic presidential candidate Joe Biden is a strong favorite to be elected, according to professional forecasters with a 78% chance of winning, as quoted on BloombergQuint.

Vaccine Hopes: More than 150 coronavirus vaccines are in development across the world. Among the companies racing for the vaccine, Moderna(MRNA) is leading the way with the start of its third-stage clinical trial on Jul 27. However, the U.S. biotech firm Moderna won't seek an emergency use authorization for its coronavirus vaccine before Nov 25.

The European Medicines Agency (EMA) said that its human medicines committee (CHMP) initiated the first “rolling review” of a COVID-19 vaccine, developed by AstraZeneca and the University of Oxford. Pfizer’s (PFE) management said that the vaccine, if proven to be safe and effective by federal regulators, in collaboration with BioNTech could reach Americans before 2020-end.

Others like Sanofi (SNY) with GlaxoSmithKline (GSK) have started the phase 1/2 clinical trial and Merck (MRK) will begin the human trials of COVID-19 vaccine candidate this month. Additionally, Vaxart (VXRT) has received clearance from the U.S. Food and Drug Administration to conduct the phase I clinical trial of its COVID-19 vaccine candidate. The company is developing an oral vaccine to prevent COVID-19.

4 ETFs to Buy

In this light, we highlight a few ETFs that could be great picks for the fourth quarter.

ProShares Online Retail ETF (ONLN - Free Report)

Though the economy is not in good shape, talks of further U.S. stimulus should boost consumers’ affordability. This should favor retail stocks and ETFs. Also, given the uncertainty surrounding COVID-19, many consumers would prefer to purchase on line. Of the consumers polled in the United States, about 88% plan to continue shopping for gifts online this year, per a mediapost article. So, ONLN is likely to gain in Q4.

Invesco WilderHill Clean Energy ETF (PBW - Free Report)

The space has been hitting headlines these days for several reasons. Big corporations are making or promising investments in achieving the most-coveted carbon neutral status. Like most Democratic candidates, Joe Biden has also been strongly campaigning for his clean energy and infrastructural plans. He intends to inject trillions of dollars into green energy for over four years to build solar panels, charging stations, etc. This is making funds like PBW attractive investment options.

Virtus LifeSci Biotech Products ETF (BBP - Free Report)

Research efforts on coronavirus vaccines, oncology and neurological conditions have made the fund a winner this year. Many small-cap players are also in focus for the upcoming clinical readouts (read: Top-Performing ETFs of the Worst September Since 2011).

Global X Cloud Computing ETF (CLOU - Free Report)

Cloud computing has been the most emerging concept lately as work-and-learn-from-home has been the only resort amid pandemic. Cloud computing company, Salesforce, has been included to the Dow Jones lately.

Also, Wall Street overall is still bullish on Big Tech, with 63% of respondents saying the FAANG (Facebook, Apple, Alphabet, Netflix and Google) will rule ahead. Many are buying tech stocks after the September slump, per a CNBC article.

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