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Forget September Lull: Buy These Top 5 ETFs Instead
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September is historically the worst month of the year for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2022 has revealed that September ended up offering positive returns in 32 years and negative returns in 41 years, with an average return of negative 0.80%, which is worse than any other month.
Terrifying financial events like the start of the Great Depression in 1929 or the fall of Lehman Brothers in 2008 all crept up in the month of September. This September is no different with renewed Fed rate hike worries rising in the United States.
Sticky inflation, supply chain issues, fears for economic slowdown and last but not the least edgy international economies like China could weigh on the market momentum. All these make it more important to pin point ETFs that have the power to navigate such threats.
Investing Backdrop
The current investing backdrop is mixed. While U.S. jobs for the month of August came in better-than-expected, the 3.3% headline PCE inflation rate was largely expected. This points to further rate hikes in the coming months or high-than-longer interest rates in the United States.
Then again, the economy expanded at a 2.1% annual rate in the April through June quarter, the Commerce Department said Wednesday, not the 2.4% initially estimated. The data indicates a cooling economy. U.S. consumer confidence dropped by more than forecast in August.
The benchmark U.S. Treasury yield touched a monthly high of 4.34% in mid-August and slumped to 4.09% on Aug 31. Meanwhile, the one-year U.S. treasury yield hit a monthly high of 5.39% on Aug 22 and fell only to 5.37% at the month-end.
Many analysts are of the view that the economy is resilient enough to withstand higher rates for longer and now is the time to buy the dip. There is only 7% chance for a 25-bo rate hike in Fed’s September meeting. Investors thus can be assured of a smooth sailing for the stock market in September.
This is especially true corporate earnings picture is improving and the AI boom is in very much in place with big tech companies poised to offer further returns. This is the backdrop in which investors have entered September.
Against this backdrop, below we highlight a few ETFs that can be tapped for gains in September.
ETFs in Focus
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
A lot of factors are favoring this sector. Decent consumer confidence level, strong labor market and last-minute back-to-school/college shopping should give the space a boost. Plus, the sector performs well in a rising rate environment. The fund has a Zacks Rank #1 (Strong Buy).
The S&P 500 has been in weak shape in August. So, the index may try to rebound in September as much of the bad news and economic fears are currently baked in the valuation. However, since rising rate worries have been prevalent in the U.S. economy currently, investors should tap the value corner of the index as value stocks fare better in a rising rate environment. The fund SPYV has a Zacks ETF Rank #1
Rate hike or not, the AI euphoria is in fine fettle. The demand for cloud is also strong. The ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. The fund has a Zacks ETF Rank #2 (Buy) (read: Tech Stocks are Back: ETFs in Focus).
The underlying OShares U.S. Quality Dividend Index measures the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States. The fund charges 48 bps in fees. The fund has a Zacks ETF Rank #2. Dividend investing offers a great safety in any kind of economic doldrums.
The underlying Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to small-capitalization U.S. companies with high free cash flow yields. The fund charges 59 bps in fees and yields 1.03% annually.
Small-cap stocks have cheaper valuation than larger ones. However, many investors are believing that markets have priced in the economic slowdown fears. Hence, investors with a strong stomach for risks can try out small-cap stocks that have strong free cash flow yields.
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Forget September Lull: Buy These Top 5 ETFs Instead
September is historically the worst month of the year for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2022 has revealed that September ended up offering positive returns in 32 years and negative returns in 41 years, with an average return of negative 0.80%, which is worse than any other month.
Terrifying financial events like the start of the Great Depression in 1929 or the fall of Lehman Brothers in 2008 all crept up in the month of September. This September is no different with renewed Fed rate hike worries rising in the United States.
Sticky inflation, supply chain issues, fears for economic slowdown and last but not the least edgy international economies like China could weigh on the market momentum. All these make it more important to pin point ETFs that have the power to navigate such threats.
Investing Backdrop
The current investing backdrop is mixed. While U.S. jobs for the month of August came in better-than-expected, the 3.3% headline PCE inflation rate was largely expected. This points to further rate hikes in the coming months or high-than-longer interest rates in the United States.
Then again, the economy expanded at a 2.1% annual rate in the April through June quarter, the Commerce Department said Wednesday, not the 2.4% initially estimated. The data indicates a cooling economy. U.S. consumer confidence dropped by more than forecast in August.
The benchmark U.S. Treasury yield touched a monthly high of 4.34% in mid-August and slumped to 4.09% on Aug 31. Meanwhile, the one-year U.S. treasury yield hit a monthly high of 5.39% on Aug 22 and fell only to 5.37% at the month-end.
Many analysts are of the view that the economy is resilient enough to withstand higher rates for longer and now is the time to buy the dip. There is only 7% chance for a 25-bo rate hike in Fed’s September meeting. Investors thus can be assured of a smooth sailing for the stock market in September.
This is especially true corporate earnings picture is improving and the AI boom is in very much in place with big tech companies poised to offer further returns. This is the backdrop in which investors have entered September.
Against this backdrop, below we highlight a few ETFs that can be tapped for gains in September.
ETFs in Focus
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
A lot of factors are favoring this sector. Decent consumer confidence level, strong labor market and last-minute back-to-school/college shopping should give the space a boost. Plus, the sector performs well in a rising rate environment. The fund has a Zacks Rank #1 (Strong Buy).
SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report)
The S&P 500 has been in weak shape in August. So, the index may try to rebound in September as much of the bad news and economic fears are currently baked in the valuation. However, since rising rate worries have been prevalent in the U.S. economy currently, investors should tap the value corner of the index as value stocks fare better in a rising rate environment. The fund SPYV has a Zacks ETF Rank #1
First Trust Cloud Computing ETF (SKYY - Free Report)
Rate hike or not, the AI euphoria is in fine fettle. The demand for cloud is also strong. The ISE Cloud Computing Index is a modified market capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. The fund has a Zacks ETF Rank #2 (Buy) (read: Tech Stocks are Back: ETFs in Focus).
ALPS OShares U.S. Quality Dividend ETF (OUSA - Free Report)
The underlying OShares U.S. Quality Dividend Index measures the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States. The fund charges 48 bps in fees. The fund has a Zacks ETF Rank #2. Dividend investing offers a great safety in any kind of economic doldrums.
Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report)
The underlying Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to small-capitalization U.S. companies with high free cash flow yields. The fund charges 59 bps in fees and yields 1.03% annually.
Small-cap stocks have cheaper valuation than larger ones. However, many investors are believing that markets have priced in the economic slowdown fears. Hence, investors with a strong stomach for risks can try out small-cap stocks that have strong free cash flow yields.