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Buy the Dip in These ETFs

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Wall Street crashed on Jan 27 with the SPDR S&P 500 ETF Trust (SPY - Free Report) , SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , the Nasdaq-100 based Invesco QQQ Trust (QQQ - Free Report) and the small-cap iShares Russell 2000 ETF (IWM - Free Report) losing about 2.4%, 2%, 2.8% and 1.8%, respectively.

Harmless profit-booking and some warnings from the too-big-to-fail companies probably led to this crash. For example,Tesla’s stock fell more than 2% after the company’s profits underperformed the estimates, though revenues notched a quarterly record.

Apple’s stock dipped 0.8% after CEO Tim Cook said during the company’s earnings call that he expected a second-quarter deceleration in wearables and services sales growth. His apprehension outdid the company’s stellar results in the recently reported quarter. Facebook too cautioned about the challenges in the ad environment in 2021.

Bidding up for heavily shorted stocks like AMC Entertainment (AMC) (up about 300% on Jan 27), and GameStop (GME) (up 135% on Jan 27) also contributed to the worst trading day (Jan 27) in three months.

However, with economic fundamentals improving steadily, investors may rally further in the coming days. Even before yesterday’s crash, the priciest equity indices were still running behind the performance of the previous bubbles, per Robert Buckland, Citi equity strategist, as quoted on a Reuters article. For example, the S&P trades at 22 times 12-month forward earnings, below the peak of 25 times seen ahead of the dotcom crisis. So, Citi expects further equity rally in the coming days.

At just over 1%, the yield on the Bloomberg Barclays Multiverse Index of 10-year government and corporate bonds worldwide is the minimum in the 22-year history of the index — less than half the rate of just two years ago and compared with 6.2% at the height of the dotcom bubble, the Reuters article noted. The Fed also intends to keep rates steady ahead. Such low rates should keep equity market investing charged up.

Hence, investors can use this market crash as a buying opportunity for some investing areas that stand to gain once the market recovers.

iShares U.S. Home Construction ETF (ITB - Free Report) – Down 2.4% On Jan 27

The fund measures the performance of the home construction sector of the U.S. equity market. Data have been encouraging in this field. One of the key players in this field – D.R. Horton Inc. (DHI) – reported first-quarter fiscal 2021 results, wherein earnings and revenues handily beat the respective Zacks Consensus Estimate.

Single-family starts rose for the eighth consecutive month in December. The upside can be largely attributed to the pandemic, as at least 23.7% of the labor force is working from home, per a Reuters article. Considering the optimism surrounding the economic recovery, a Redfin report  predicts more than a 10% increase in annual home sales in 2021, following 5% growth last year.

Daryl Fairweather, chief economist of Redfin, has reportedly said that “even as the pandemic hopefully nears its end, Americans will continue to buy homes that fit their new lifestyle.  As a result, 2021 will see more home sales than any year since 2006,” in this regard (read: Ride the Housing Market Momentum With These ETFs).

Global X Cloud Computing ETF (CLOU - Free Report) – Down 1.4% On Jan 27

With or without the pandemic, cloud computing is here to stay. Cloud computing and storage have given a boost to video conferencing, gaming, e-commerce shopping, remote project collaboration, online classes, etc. It is being used in applications in social networking, messaging apps and streaming services (read: Cloud Computing Gets Bull & Bear Leveraged ETFs From Direxion)

In the wake of the pandemic, cloud technology adoption has seen robust growth.  Globally, end-user spending on public cloud services is forecast to grow 18.4% in 2021 to a total $304.9 billion, according to Gartner. In fact, recent Gartner survey data shows that about 70% of organizations using cloud services today intend to boost their cloud spending in the future as the COVID-19 crisis has strengthened its necessity.

ETFMG Alternative Harvest ETF (MJ - Free Report) – Down 0.6% On Jan 27

It’s a Biden-friendly area. Biden’s victory in the U.S. presidential election could speed up the legalization of marijuana at the federal level, thereby providing a boost to the U.S. cannabis industry.

On Dec 4, the House passed a sweeping legislation to decriminalize marijuana and remove nonviolent marijuana-related convictions. Now, with Senate likely to be ruled by Democrats, chances are high that marijuana could see a sweeping reform ahead.

Moreover, in early November, voters in Arizona, Montana, New Jersey and South Dakota voted in favor of the adult use of cannabis, bringing the total number of states that have cleared it for that purpose to 15.

Invesco WilderHill Clean Energy ETF (PBW - Free Report) – Down 4.7% On Jan 27

Climate change is one of the top priorities of the Biden administration. Biden already canceled Keystone XL Pipeline and rejoined the Paris Climate Agreement. Notably, Paris Climate Agreement is the international treaty designed to counter disastrous global warming. Biden ordered federal agencies to start reviewing and reestablishing more than 100 environmental regulations that were weakened or canceled by Donald Trump. No wonder, clean energy ETFs will start soaring from such a move.

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