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5 ETFs to Play the Key Events in Fourth Quarter

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Wall Street may currently have a volatile run but the fourth quarter has mostly been favorable for investors. 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 decade, the S&P 500 Index has averaged a 4% gain, according to a CNBC analysis of Kensho released in 2019.

The S&P 500 had traded positively 80% of the time. The Dow Jones Industrial Average had gained 5% in fourth quarters over the past 10 years, trading in the positive zone for 80% of the time.

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.

Mastercard SpendingPulse released its holiday forecast in September, which says U.S. retail sales are expected to rise 7.4% year over year (up 11.1% versus 2019) for the holiday season, excluding autos and gas. Shoppers are expected to hit the stores with in-store sales are forecast to jump 8.9% year over year, or up 6.6% barring autos and gas.

And e-commerce is expected to increase 7.6% (up 57.3% from 2019). Low levels of unemployment coupled with sustained monthly job creation might encourage consumers to spend more during the holiday season.

Chances of a Fed Rate Hike: Federal Reserve Chair Jerome Powell said in late September the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year.

The announcement of the Fed QE taper may come in the policy gathering on Nov 2-3. However, the Fed chair Powell left the door open to waiting longer should the need be and stressed that tapering is not directly corelated with the timing of rate liftoff. U.S. treasury bond yields started going higher in recent weeks thanks to the Fed cues (read: Fed Taper to Start in November? 7 ETFs to Buy).

Approval of Antiviral Pills & Booster Shots? Drugmaker Merck (MRK) recently asked U.S. regulators to authorize its pill for treating COVID-19. If approved by the Food and Drug Administration — a decision which may take shape in the coming weeks — it would be the first pill shown to treat the illness. All other FDA-backed treatments against COVID-19 are in the form of IV.

Meanwhile, scientists at the U.S. Food and Drug Administration said this week that Moderna Inc (MRNA) had not met all of the agency's criteria to support use of booster doses of its COVID-19 vaccine, possibly due to stronger response of first two doses.

People who received a Johnson & Johnson coronavirus vaccine may be better-off with a booster shot from Moderna or Pfizer-BioNTech, according to preliminary data from a federal clinical trial published on Wednesday, as quoted on nytimes.

4 ETFs to Buy

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

SPDR S&P Retail ETF (XRT - Free Report)

Investors should also note that the consumer discretionary sector is cyclical in nature, and normally performs better in a trending economy, irrespective of rate hike fear. The cyclicality of the sector and an expected surge in sales make XRT our choice. The fund invests about 19.6% in apparel retail, which would be a key selling area in the holiday season.

iShares PHLX Semiconductor (SOXX - Free Report)

The technology sector could be a great long-term bet. Within the broader tech space, semiconductor, the value-centric traditional tech area gains an edge in a still-edgy investing backdrop. Demand for gadgets will remain high in the quarter. Electronics normally remain at the top of Black Friday bargains.

ETFMG Travel Tech ETF (AWAY - Free Report)

Chances are high that reopening trade would gain steam in the fourth quarter bolstered by widespread vaccination and chances of more treatment opportunities. Travel and tourism stocks also benefitted after the Biden administration announced they would ease travel restrictions for vaccinated foreigners. Many investors see value in the sector, which was hard hit by the Delta resurgence this summer (read: Should You Invest in Travel & Tourism ETFs Now?).   

Industrial Select Sector SPDR Fund (XLI - Free Report)

Industrial sector has been one of the top performers of the fourth quarter over the last 10 years with an average return of around 6%, per CNBC. The fund XLI has Zacks ETF Rank #1.

ProShares Online Retail ETF (ONLN - Free Report)

The current wave of digitization is favoring both ecommerce pure-plays and traditional retailers, which are stepping into ecommerce to tap the surge in online shopping. So, wonder, ONLN would be a hot investing area in Q4.