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5 ETF Areas Shining Bright as US Economy Looks Strong

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Wall Street has remained strong so far in March despite several headwinds. The broad market averages are in green for the month to date. The Dow Jones Industrial Average is up 2.4% in the period. The other two indexes, the S&P 500 and the Nasdaq composite, are also up 3.3% and 3.2%, respectively, in the same time frame.

The solid U.S. economic fundamentals are keeping the market participants upbeat despite the Russia-Ukraine war crisis, the high inflation levels and the Fed’s aggressive approach to interest rate hikes. In fact, the Federal Reserve approved a 0.25 percentage point rate hike (the first increase since December 2018) on Mar 16. The central bank also announced plans to increase interest rates six times this year, aiming to touch a consensus funds rate of 1.9% by 2022 end (per a CNBC article). This aggressive stance has been going down well with the market participants for sometime as they believe, it will assist in controlling the hot inflation levels in the longer term. Investors also believe that the strong U.S. economy fundamentals might have supported the Fed’s decision.

The report posted on last week’s jobless claims also turned out to be very encouraging. According to the Labor Department report released on Mar 24, initial jobless claims of the previous week had hit the lowest level since 1969 and totaled 187,000 (per a CNBC article). The figures reinforced the market participants’ confidence in the economic recovery from the pandemic-led slowdown.

Moreover, the labor market continues to improve. According to the Bureau of Labor Statistics, the U.S. economy added 678,000 jobs in February, beating economists’ expectations of 440,000 (per Dow Jones). The unemployment rate also dropped to 3.8%.

The latest release on the U.S. industrial output data is a welcoming relief amid an improving labor market and easing pandemic conditions. Per the Fed’s recently-issued data, total industrial production inched up 0.5% in February. A 1.2% rise in the manufacturing output compared favorably with the index remaining almost flat in the last two months.

Considering the current market conditions, let’s look at some ETF options that can be good additions to investors’ portfolio:

Chips ETFs

The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to create solid opportunities in 2022. Moreover, the revolutionary 5G platform is expected to act as a major catalyst for semiconductor revenues in the mobile phone market. Per a Semiconductor Industry Association (SIA) report, the global semiconductor sales hit a record high of $555.9 billion in 2021, climbing 26.2% year over year. Semiconductor sales came in at $440.4 billion in 2020. With this, the metric crossed the $500-billion level for the first time.

Investors aiming to make the most of this uptrend in a diversified way could consider ETFs like iShares Semiconductor ETF (SOXX - Free Report) , VanEck Semiconductor ETF (SMH - Free Report) , First Trust Nasdaq Semiconductor ETF (FTXL) and Invesco Dynamic Semiconductors ETF (PSI) (read: Time to Tap Semiconductor ETFs on Beaten-Down Valuation?).

Materials ETFs

The materials space is expected to remain strong as improving labor market conditions, growing consumer spending, accelerated coronavirus vaccine rollout and the passage of the much-awaited $1.2-trillion infrastructure bill are pointing toward a faster recovering economy.

iShares U.S. Basic Materials ETF (IYM - Free Report) , The Materials Select Sector SPDR Fund (XLB - Free Report) , Vanguard Materials ETF (VAW) and Fidelity MSCI Materials Index ETF (FMAT) are a few ETF options for the market participants to consider (read: 4 Sector ETFs to Bet Big on Upbeat U.S. Manufacturing Data).

Industrials ETFs

The coronavirus vaccine rollout is gradually controlling the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors. The progress in coronavirus vaccine rollout presents a strong case,favoring a rapid return to normalcy and economic recovery.

Investors can consider The Industrial Select Sector SPDR Fund (XLI - Free Report) , Vanguard Industrials ETF (VIS - Free Report) , Fidelity MSCI Industrials Index ETF (FIDU) and iShares U.S. Industrials ETF (IYJ) (read: Will Industrial ETFs Gain From Improving US Output?).           

Consumer Discretionary ETFs

A number of restaurants and retailers that resumed business after restrictions were relaxed in the United States are witnessing some accelerated demand and footfall. Also, the leisure and entertainment space is expected to see a rebound as casinos and amusement parks started welcoming visitors. Also, the improving labor market conditions are going to increase people’s spending power, providing support to the consumer discretionary sector.

Thus, investors can take a look at The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Vanguard Consumer Discretionary ETF (VCR - Free Report) , First Trust Consumer Discretionary AlphaDEX Fund (FXD) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS) (read: U.S. Yields Surging: Sector ETFs to Win).

Energy ETFs

Investors have been closely tracking the energy sector for a while, which is steadily showing strength as global demand and economic growth levels are on the path of recovery from the pandemic-led slump. The energy sector is attracting investors’ attention to the latest oil price rally. Oil prices have been rising since the beginning of 2022. The upsurge in crude oil prices is triggered by factors like easing Omicron-variant concerns, supply shortages and geopolitical tensions in the Eastern Europe and the Middle East.

Against the bullish energy sector backdrop, let’s look at some energy ETFs that are worth adding to your portfolio for boosting returns: Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) , Vanguard Energy ETF (VDE - Free Report) , Fidelity MSCI Energy Index ETF (FENY), The Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) (read: Russia-Ukraine Crisis Powers Rally in Energy ETFs).