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Is Market Too Scared About a Hawkish Fed? Low P/E ETF Picks

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Market has gone ‘too far’ at pricing in Fed rate hikes, said Mohamed El-Erian, Mohamed El-Erian, Allianz and Gramercy advisor and president of Queens’ College, Cambridge, as quoted on CNBC. If you believe so, you must know that chances of profit recession are not that acute. Economic recession and profit recession are different things. And if markets are pricing in the potential Fed rate hikes more acutely, then it fails to justify the worth of corporate profits.

According to Bank of America, the bull market is a few months away, as quoted on MarketWatch. Per history, B. of A. Global Investment Strategy’s chief investment strategist, Michael Hartnett, pointed out that the average peak-to-trough bear-market decline has been 37.3% over a span of 289 days. The S&P 500 is down about 24% from the all-time high.

Matching that pattern should put the end of the bear market on Oct 19, 2022, according to statistical averages, with the S&P 500 likely bottoming at 3,000. An end typically marks a new beginning, with Bank of America pointing out that the average bull market lasts a much longer 64 months with a 198% return, “so next bull sees the S&P 500 at 6,000 by Feb 28,” said Hartnett, quoted on MarketWatch.

More data from the bank revealed that about $16.6 billion flowed into stocks in a week of mid-June, $18.5 billion from bonds and $50.1 billion from cash. Also, the data showed that it was the first week of inflows to emerging-market equities in the past six weeks, which was at $1.3 billion. It also marked the biggest inflow to U.S. small-cap stocks since December 2021, which was at $6.6 billion; the largest influx to U.S. value stocks in 13 weeks, at $5.8 billion; and biggest flow toward tech in nine weeks, at $800 million.

No wonder, the signs show a trend reversal. Against this backdrop, below we highlight a few ETFs that have a low P/E as these are beaten-down (P/Es are less than that of the S&P 500, i.e., 19.00X) and but have Zacks Rank #1 (Strong Buy) or #2 (Buy)

Emles Made In America ETF (AMER - Free Report) – P/E 13.52X – Rank #2

The Emles American Manufacturing Index is designed to provide exposure to U.S. equities, predominantly companies headquartered and focused on the production of goods within the United States. As these are U.S.-economy-dependent, these do not have to depend of raw materials from outside and suffer for supply chain issues.

SPDR Dow Jones Industrial Average ETF (DIA - Free Report) – P/E 16.44X – Rank #1

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. Notably, the Dow Jones is heavy with materials stocks. With materials prices staging an uptrend, the Dow Jones has every chance to outperform in a market rally.

iShares U.S. Insurance ETF (IAK - Free Report) – P/E 9.30X – Rank #2

The underlying Dow Jones U.S. Select Insurance Index includes companies providing a range of specialized financial services, including securities brokers & dealers, online brokers & securities or commodities exchanges. The insurance sector tends to perform better in a rising rate environment.

First Trust Rising Dividend Achievers ETF (RDVY - Free Report) – P/E 9.91X – Rank #2

The underlying NASDAQ US Rising Dividend Achievers Index is designed to provide access to a diversified portfolio of companies with a history of paying dividends. This kind of strategy gives a safe exposure.

iShares MSCI USA Value Factor ETF (VLUE - Free Report) – P/E 10.07X – Rank #1

The underlying MSCI USA Enhanced Value Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid-capitalization value stocks. Value stocks normally fare better in a rising rate era than growth stocks. Hence, we can conclude now is the time to bet on value funds.