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Bear Market Rally in the Cards? Top-Ranked Low P/E ETFs to Tap
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The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. Overall, the S&P 500 is down 23.6% this year. The Nasdaq Composite is off 31.9%, the Dow Jones has lost about 20% while the Russell 2000 has skidded 24.2% year to date (as of Oct 6, 2022).
According to Ari Wald, head of technical analysis at Oppenheimer, we’re on the cusp of a turnaround right now, as quoted on TipRanks, published on Yahoo Finance in early September.
The current pullback in the S&P 500 is now the longest from peak to trough since the March 2009 low at 269 days and counting, according to research from Compound Capital Advisors, as quoted on Yahoo Finance. At a decline of 25.2%, this year’s correction has been worse than the average pullback of 7.6% going back to 2009.
“In the post-war era, the majority of bear cycles have been long-and-shallow or short-and-sharp. We’ve only counted four long-and-deep declines (1968, 1973, 2000, and 2007), and believe market conditions are stronger now than they were in those outlier periods.”
Against this backdrop, below we highlight a few ETFs that have a low P/E and thus are prone to bounce back faster than their peers.
Financials stocks had unperformed the broader indexes earlier this year due to concerns that the Fed’s aggressive tightening campaign to tame inflation would push the economy into a recession. Results reported by six biggest US banks suggested that the economy could manage a “soft landing” while the Fed raises rates. Bank stocks have rebounded since mid-June as some investors believe that much of the bad news is already priced in and valuations look attractive at current levels.
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Value stocks fare better in a rising rate environment, which is the current scenario of U.S. economy.
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 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. As a result, the consumer discretionary sector has every chance to outperform in Q4.
The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs, venture capital investments and merger and acquisitions.
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Bear Market Rally in the Cards? Top-Ranked Low P/E ETFs to Tap
The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. Overall, the S&P 500 is down 23.6% this year. The Nasdaq Composite is off 31.9%, the Dow Jones has lost about 20% while the Russell 2000 has skidded 24.2% year to date (as of Oct 6, 2022).
According to Ari Wald, head of technical analysis at Oppenheimer, we’re on the cusp of a turnaround right now, as quoted on TipRanks, published on Yahoo Finance in early September.
The current pullback in the S&P 500 is now the longest from peak to trough since the March 2009 low at 269 days and counting, according to research from Compound Capital Advisors, as quoted on Yahoo Finance. At a decline of 25.2%, this year’s correction has been worse than the average pullback of 7.6% going back to 2009.
“In the post-war era, the majority of bear cycles have been long-and-shallow or short-and-sharp. We’ve only counted four long-and-deep declines (1968, 1973, 2000, and 2007), and believe market conditions are stronger now than they were in those outlier periods.”
Against this backdrop, below we highlight a few ETFs that have a low P/E and thus are prone to bounce back faster than their peers.
ETFs in Focus
First Trust Financials AlphaDEX ETF (FXO - Free Report) – P/E 8.01X; Zacks Rank #2 (Buy)
Financials stocks had unperformed the broader indexes earlier this year due to concerns that the Fed’s aggressive tightening campaign to tame inflation would push the economy into a recession. Results reported by six biggest US banks suggested that the economy could manage a “soft landing” while the Fed raises rates. Bank stocks have rebounded since mid-June as some investors believe that much of the bad news is already priced in and valuations look attractive at current levels.
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – P/E 8.22X; Zacks Rank #1 (Strong Buy)
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Value stocks fare better in a rising rate environment, which is the current scenario of U.S. economy.
SPDR S&P Retail ETF (XRT - Free Report) – P/E 11.87X; Zacks Rank #2
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 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. As a result, the consumer discretionary sector has every chance to outperform in Q4.
SPDR S&P Biotech ETF (XBI - Free Report) – P/E 12.39X; Zacks Rank #2
The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs, venture capital investments and merger and acquisitions.