The S&P 500 and the Dow Jones have been hovering around all-time highs lately. Vaccine optimism, rock-bottom interest rates, massive fiscal stimulus under the Biden administration, upbeat economic data points released lately and a decent earnings season have led to the surge.
Notably, the U.S. economy is forecast (by economists) to expand on average 6.2% this year, the most-upbeat outlook since polling started for the period more than two years ago,
as quoted on Reuters. If the forecast is met, the growth rate would mark the fastest annual growth since 1984, the Reuters article noted.
However, the equity rally may trigger some overvaluation concerns as COVID-19 cases are rising and slowdown fears are rife. Against this backdrop, investors might want to know which sectors are on sale even in a pricey market and if those can be ridden for gains.
Finance – SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report) ) – P/E 13.53X
A rising rate environment, though gradual, will lead to a favorable operating environment for financial stocks. Also, banking stocks offer value now. Banking stocks are highly cyclical as these are vulnerable to changes in economic conditions and policies.
Activity levels in the equity underwriting, M&A and trading has been around record levels for the seasonally weak Q1, which more than compensated for the persistent sluggishness in lending demand and margin pressures. Finance sector earnings are expected to surge 74.0% on 4.6% higher revenues in Q1, which follows the 13.6% earnings growth on 1.2% higher revenues in Q4 of 2020, per Earnings Trends issued on Apr 14, 2021. Automotive – First Trust NASDAQ Global Auto ETF ( CARZ Quick Quote CARZ - Free Report) ) – P/E 15.05X
The U.S. auto industry bounced back strongly in the first quarter of 2021 as car sales
soared 11% in the first quarter of 2021 buoyed by the waning signs of COVID-19 crisis and concerns over potential vehicle shortages (caused by global chip crunch). Sales of electrified vehicles surged 81% in Q1 in the United States. Europe car sales shot up 63% in March.
Auto sector earnings are expected to surge 202.5% on 8% higher revenues in Q1, which follows the 170.1% earnings growth on 1.8% higher revenues in Q4 of 2020 (read:
Auto Sales Jump in Q1: ETF & Stocks to Ride On). Basic Materials – iShares U.S. Basic Materials ETF ( IYM Quick Quote IYM - Free Report) ) – P/E 15.13X
The sector’s earnings are forecast to skyrocket as much as 63.5% in Q1. Revenues are expected to grow 10.4% in the first quarter. This followed a 28.1% rise in earnings in Q4 over a 1.6% rise in revenues. The sector is a beneficiary of low interest rates and higher economic activity. The Biden administration’s infrastructural expansion plan also bodes well for the sector.
Construction – Invesco Dynamic Building & Construction ETF ( PKB Quick Quote PKB - Free Report) ) – P/E 17.79X
President Biden’s $2.3-trillion infrastructure plan and solid home sales are the tailwinds for the constriction sector. President Joe Biden presented a $2.3-trillion infrastructure plan looks to restore about 20,000 miles of roads and 10,000 bridges along with rail lines and utilities over a span of eight years.
Construction sector earnings are expected to rise 37.4% on 8.6% higher revenues in Q1, which follows the 31.5% earnings growth on 11.7% higher revenues in Q4 of 2020 (read:
ETFs to Win on Biden's Infrastructure Plan). Utilities – First Trust Utilities AlphaDEX ETF ( FXU Quick Quote FXU - Free Report) ) – P/E 19.33X
The sector is defensive and non-cyclical in nature. Its earnings are expected to expand 3.3% in Q1 on 4.8% revenue growth. Though the rising rate trend is unfavorable for the sector, the current rates are not high enough to cause any disruption to the sector. The fund is high-yield in nature.
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 >>