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After a downbeat September, October started on a volatile note. U.S. stocks snapped a two-day rally to close Wednesday lower. High inflation, global rate hikes including the Fed, U.K.’s turmoil in the currency and financial markets, rising greenback and a volatile oil patch might keep the market unstable to start the month.
Historically, October has a moderate reputation in the stock market. According to moneychimp.com, a consensus carried out from 1950 to 2021 has revealed that October ended up offering positive returns in 44 years and negative returns in 28 years, with an average positive return of 0.70%.
This year is unlikely to be an exception. While jitters may emanate from inflation, rising rates, and recession, strength may be added by the upcoming holiday season. Against such a backdrop, let’s take a look at the ETFs that could be good picks in October.
Mastercard SpendingPulse released its holiday forecast in September, which says U.S. retail sales are expected to rise non-inflation adjusted 7.1% year over year (up 8.5% versus 2021) for the holiday season, excluding autos and gas. The NRF predicts that consumers will shell out $10.6 billion on Halloween this year, up from $10.1 billion last year.
The fund XRT invests about 19.6% in apparel retail, which would be a key selling area in the holiday season. Apparel sales are likely to be up 4.6% year over year in Q4 of 2022, per Marstercard Spending Pulse (read: Best Industry ETFs to Play).
Invesco DB US Dollar Index Bullish ETF (UUP - Free Report) – Zacks Rank #2
The U.S. dollar strengthened lately versus a basket of major currencies as market watchers focused on a super-hawkish Fed. Global recessionary fear is also rampant. This fact provides support to the safe-haven trades like U.S. dollar.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) – Zacks Rank #1 (Strong Buy)
Although oil price has slid lately and is currently hovering around $81/barrel, prices may rise in the fourth quarter due to a likely pickup in activities. Brent crude is currently at the level of $89, but EIA expects the price to average $98 per barrel in the fourth quarter of 2022 and $97/b in 2023. Winter months will also likely push up the price for natural gas. Natural Gas for Nov 22 futures is currently priced at $6.90. IEA expects the Henry Hub price to average about $9/MMBtu in 4Q22. Plus, OPEC+ has agreed for a deep ouput cut for the month of November.
SPDR S&P 400 Mid Cap Value ETF (MDYV - Free Report) – Zacks Rank #1
Mid-caps always offer middle-of-the-road approach between large and small caps. Large-caps (that have extensive foreign exposure) are recently in a tight spot due to the rising greenback and weak economic conditions abroad. Small-caps are also not out of the woods due to recessionary fears in the United States. Hence, mid-cap value stocks appear to be safer bets amid a rising rate environment.
If recessionary fears priced in at the current level and holiday season activities pick up, risk-on sentiments may see a way for a leg-up. If this happens, long-term treasury yields will gain, resulting in a steepening of the yield curve. This scenario is great for banking stocks. However, the fund has High risk exposure.
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5 Top-Ranked ETFs Likely to Flourish in October
After a downbeat September, October started on a volatile note. U.S. stocks snapped a two-day rally to close Wednesday lower. High inflation, global rate hikes including the Fed, U.K.’s turmoil in the currency and financial markets, rising greenback and a volatile oil patch might keep the market unstable to start the month.
Historically, October has a moderate reputation in the stock market. According to moneychimp.com, a consensus carried out from 1950 to 2021 has revealed that October ended up offering positive returns in 44 years and negative returns in 28 years, with an average positive return of 0.70%.
This year is unlikely to be an exception. While jitters may emanate from inflation, rising rates, and recession, strength may be added by the upcoming holiday season. Against such a backdrop, let’s take a look at the ETFs that could be good picks in October.
SPDR S&P Retail ETF (XRT - Free Report) – Zacks Rank #2 (Buy)
Mastercard SpendingPulse released its holiday forecast in September, which says U.S. retail sales are expected to rise non-inflation adjusted 7.1% year over year (up 8.5% versus 2021) for the holiday season, excluding autos and gas. The NRF predicts that consumers will shell out $10.6 billion on Halloween this year, up from $10.1 billion last year.
The fund XRT invests about 19.6% in apparel retail, which would be a key selling area in the holiday season. Apparel sales are likely to be up 4.6% year over year in Q4 of 2022, per Marstercard Spending Pulse (read: Best Industry ETFs to Play).
Invesco DB US Dollar Index Bullish ETF (UUP - Free Report) – Zacks Rank #2
The U.S. dollar strengthened lately versus a basket of major currencies as market watchers focused on a super-hawkish Fed. Global recessionary fear is also rampant. This fact provides support to the safe-haven trades like U.S. dollar.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) – Zacks Rank #1 (Strong Buy)
Although oil price has slid lately and is currently hovering around $81/barrel, prices may rise in the fourth quarter due to a likely pickup in activities. Brent crude is currently at the level of $89, but EIA expects the price to average $98 per barrel in the fourth quarter of 2022 and $97/b in 2023. Winter months will also likely push up the price for natural gas. Natural Gas for Nov 22 futures is currently priced at $6.90. IEA expects the Henry Hub price to average about $9/MMBtu in 4Q22. Plus, OPEC+ has agreed for a deep ouput cut for the month of November.
SPDR S&P 400 Mid Cap Value ETF (MDYV - Free Report) – Zacks Rank #1
Mid-caps always offer middle-of-the-road approach between large and small caps. Large-caps (that have extensive foreign exposure) are recently in a tight spot due to the rising greenback and weak economic conditions abroad. Small-caps are also not out of the woods due to recessionary fears in the United States. Hence, mid-cap value stocks appear to be safer bets amid a rising rate environment.
Invesco KBW Regional Banking ETF (KBWR - Free Report) – Zacks Rank #1
If recessionary fears priced in at the current level and holiday season activities pick up, risk-on sentiments may see a way for a leg-up. If this happens, long-term treasury yields will gain, resulting in a steepening of the yield curve. This scenario is great for banking stocks. However, the fund has High risk exposure.