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5 Sector ETFs Hitting New Highs Amid Market Volatility

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The U.S. stock market has been on a smooth ride though concerns over rising inflation and lofty valuations in growth tech stocks weighed on investors’ sentiment. A key inflation indicator — the core personal consumption expenditures price index — jumped 3.1% year over year in April — the highest in nearly three decades.

Although inflation is high, the Fed views this as temporary. The central bank is buying at least $120 billion of bonds each month and has kept benchmark short-term rates near zero. As millions of Americans are now fully vaccinated and pandemic restrictions are being rolled back, the U.S. economy is on a strong recovery path (read: Consumer Discretionary ETFs to Shine as US Economy Reopens).

Additionally, huge infrastructure spending as well as massive fiscal and monetary stimulus is instilling strong confidence in the economy. The combination of factors is leading to pent-up demand for all types of products and services in the economy. Thus, the sectors poised to benefit the most from such a trend have been enjoying a huge ascent and are outperforming.

Further, lower interest rates make borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt. Consequently, it leads to strong economic growth and is thus a boon for the stock market. The bouts of latest data also instilled strong confidence in economic growth. U.S. manufacturing activity hit a record-high in May for the second straight month supported by stronger expansion in output and new orders. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago — the highest reading since 1992 and sharply higher than the March reading of 1.9%.

Against this backdrop, we highlighted a number of ETFs from various sectors that are hitting new highs in the last couple of sessions. Any of these could be excellent plays for investors looking to ride out the bullish trend in the coming months given their high momentum and the favorable Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Energy Select Sector SPDR (XLE - Free Report)

This is the largest and most-popular ETF in the energy space with AUM of $24.4 billion and an average daily volume of 27.8 million shares per day. Expense ratio is 0.12%. The fund follows the Energy Select Sector Index and holds 23 securities in its basket. The product has a Zacks ETF Rank #2 with a High risk outlook (read: 5 Energy ETFs at the Forefront of Oil Rally With More Upside).

Vanguard Real Estate ETF (VNQ - Free Report)

This fund follows the MSCI US Investable Market Real Estate 25/50 Index and holds 174 stocks in its basket. Specialized REITs take the largest share at 37.6% while residential REITs and industrial REITs round off the top three with double-digit exposure each. Expense ratio comes in at 0.12%. VNQ is the most popular and liquid ETF with AUM of $40.1 billion and an average daily volume of around 4.2 million shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares U.S. Financials ETF (IYF - Free Report)

This ETF offers exposure to U.S. banks, insurers, and credit card companies by tracking the Dow Jones U.S. Financials Capped Index. It holds 232 stocks in its basket with key holdings in diversified financials, banks, real estate and insurance. The fund has amassed $2.4 billion in its asset base and charges 42 bps in annual fees. It has a Zacks ETF Rank #2 with a Medium risk outlook.

Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)

This product offers exposure to 32 stocks that are engaged in the manufacture, sale or distribution of food and beverage products, agricultural products, and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index. With AUM of $123.6 million, the fund charges 63 bps in annual fees from investors and sees a light average daily volume of 19,000 shares. It currently has a Zacks ETF Rank #3 (Hold) (read: Play Reopening -- Friendly ETFs Ahead of Memorial Day).

First Trust NASDAQ Global Auto ETF (CARZ - Free Report)

This fund offers a pure-play global exposure to 33 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has $59.3 million in AUM and trades in a small average daily trading volume of about 22,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook.

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