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Investing in the stock market has always involved navigating various uncertainties, and the current economic landscape in the United States is no exception. The U.S. economy is currently experiencing a prolonged downturn, putting technology stocks at risk just when they're attracting significant investor interest, according to strategists from Bank of America Corp., as quoted on Bloomberg, published on Yahoo Finance.
Led by Michael Hartnett, the team anticipates a recession that could impact the credit and tech sectors, reminiscent of the 2008 financial crisis. The week leading up to May 10th saw $3.8 billion channeled into technology stocks, marking the largest inflow since December 2021, based on EPFR Global data, the same article revealed.
Conversely, financial equities experienced a withdrawal of $2.1 billion, the most substantial redemption since May 2022, amidst upheaval among regional banks in the US. Despite projected continued earnings decline from last year, traders are optimistic about a recovery in 2024.
Hartnett, who accurately predicted the stock exodus driven by recession fears last year, cautions that the US central bank is unlikely to halt interest rate hikes due to high inflation, low unemployment, and favorable presidential approval ratings. Bloomberg Intelligence strategists share similar concerns, suggesting that a bubble in tech, media, and telecommunication stocks may deflate as they face the reality of higher-for-longer interest rates and a subdued earnings outlook.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
The underlying Northern Trust Quality Dividend Index is designed to provide exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust 1250 Index and the Index are selected based on expected dividend payment and fundamental factors. The fund yields 2.30% annually and charges 37 bps in fees.
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 15 bps in fees and yields 1.78% annually.
The underlying MSCI World ex USA Sector Neutral Quality Index seeks to capture the performance of stocks deemed by MSCI Inc by identifying common stocks with high quality scores based on three main fundamental variables: high return on equity, stable year-over-year earnings growth & low financial leverage, while maintaining reasonably high trading liquidity, investment capacity & moderate index turnover. The fund charges 30 bps in fees and yields 2.83% annually.
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Seek Quality ETFs if Recessionary Worries Mount
Investing in the stock market has always involved navigating various uncertainties, and the current economic landscape in the United States is no exception. The U.S. economy is currently experiencing a prolonged downturn, putting technology stocks at risk just when they're attracting significant investor interest, according to strategists from Bank of America Corp., as quoted on Bloomberg, published on Yahoo Finance.
Led by Michael Hartnett, the team anticipates a recession that could impact the credit and tech sectors, reminiscent of the 2008 financial crisis. The week leading up to May 10th saw $3.8 billion channeled into technology stocks, marking the largest inflow since December 2021, based on EPFR Global data, the same article revealed.
Conversely, financial equities experienced a withdrawal of $2.1 billion, the most substantial redemption since May 2022, amidst upheaval among regional banks in the US. Despite projected continued earnings decline from last year, traders are optimistic about a recovery in 2024.
Hartnett, who accurately predicted the stock exodus driven by recession fears last year, cautions that the US central bank is unlikely to halt interest rate hikes due to high inflation, low unemployment, and favorable presidential approval ratings. Bloomberg Intelligence strategists share similar concerns, suggesting that a bubble in tech, media, and telecommunication stocks may deflate as they face the reality of higher-for-longer interest rates and a subdued earnings outlook.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
ETFs in Focus
FlexShares Quality Dividend ETF (QDF - Free Report)
The underlying Northern Trust Quality Dividend Index is designed to provide exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust 1250 Index and the Index are selected based on expected dividend payment and fundamental factors. The fund yields 2.30% annually and charges 37 bps in fees.
Invesco S&P 500 Quality ETF (SPHQ - Free Report)
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 15 bps in fees and yields 1.78% annually.
iShares Edge MSCI International Quality Factor ETF (IQLT - Free Report)
The underlying MSCI World ex USA Sector Neutral Quality Index seeks to capture the performance of stocks deemed by MSCI Inc by identifying common stocks with high quality scores based on three main fundamental variables: high return on equity, stable year-over-year earnings growth & low financial leverage, while maintaining reasonably high trading liquidity, investment capacity & moderate index turnover. The fund charges 30 bps in fees and yields 2.83% annually.