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5 Reasons Why September May Give ETF Investors a Sweet Surprise

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Since 1945, September has gained disrepute as a challenging month for stocks. Records show that the S&P 500 has experienced declines in more than half of times in the month of September, with an average return of negative 0.73%, according to CFRA data, as quoted on Yahoo Finance. However, this year, the losing trend may fail to materialize and impress ETF investors with sweet returns. 

S&P 500 Solid YTD Gains Sets a Bullish Historical Tone

Ryan Detrick, the chief market strategist at Carson Group, emphasizes that year-to-date gains matter in toning September returns, as indicated by the Yahoo article. When the stock market is up over 10% for the year right before the entry into September, the month's historically negative performance might not hold as true. The S&P 500 is up 17.6% this year and 15.1% past year.

A Downbeat August

The S&P 500 has declined 0.06% in the past month (as of Sep 1, 2023), while the Nasdaq has added only 0.9%. Wall Street euphoria was hurt by a sequence of bank downgrades and expectations of higher-than-longer interest rates.

However, those hawkish Fed cues are now priced in at the current level. A steepening yield curve may even back the otherwise struggling bank stocks. Plus, the latest jobs report came in slightly downbeat, which may keep the Fed to act more hawkish in the coming meetings.

S&P 500 Earnings in Transition?

If these were not enough, per the Earnings Trends issued on Aug 30, 2023, year-over-year quarterly earnings will likely turn from negative to positive after Q3.The S&P 500 is likely to record 5.2% growth in earnings over a 3.2% uptick in revenues. Historically, such a positive transition is “greeted positively by equities,” per Slimmon of Morgan Stanley (read: Should You Buy the Dip in U.S. Stocks? Top ETFs in Focus).

AI Momentum in Fine Fettle

Throughout the year, the market's upward trajectory has been buoyed by the excitement surrounding artificial intelligence (AI). Companies like Nvidia, Meta and Microsoft have seen their stocks surge due to their involvement in AI-related ventures. This trend extends beyond tech giants, with businesses from various sectors integrating AI into their strategies, leading to mentions of AI transformation during earnings calls.

In September too, the AI hype could provide a boost to investor confidence. Microsoft, Meta and Salesforce are all gearing up to unveil their latest AI innovations through events and conferences. This suggests that AI's positive influence is yet to be over (read: Guide to Artificial Intelligence ETFs).

Moreover, the upcoming unveiling of the iPhone 15 and new Apple watches on Sep 12 has captured Wall Street's attention. The anticipation around Apple's (AAPL) product launch always adds an element of excitement in the all-important tech sector.

Solid Cash Reserves and Market Resilience

Against a backdrop of uncertainty surrounding the Federal Reserve's monetary policy and rising interest rates, more investors have turned to holding cash or investing in cash-related products. This move toward acquiring liquidity might actually work in market's favor, as excess cash has the ability to revive momentum and propel gains. The increase in money market fund assets, totaling $5.57 trillion as of late August, indicating solid cash reserves at investors’ hands.

Against this backdrop, below we highlight a few top-ranked ETFs that could be tapped for gains ahead.

ETFs in Focus

Vanguard Consumer Discretionary ETF (VCR - Free Report)

The underlying MSCI US Investable Market Consumer Discretionary 25/50 Index is designed to transition in and out of securities affected by pending updates to the consumer discretionary sector. The Zacks Rank #1 (Strong Buy) fund charges 10 bps in fees.

Global X Cloud Computing ETF (CLOU - Free Report)

The underlying Indxx Global Cloud Computing Index provides exposure to exchange-listed companies in developed and emerging markets that are positioned to benefit from the increased adoption of cloud computing technology. The Zacks Rank #1 fund charges 68 bps in fees.

Vanguard S&P Mid-Cap 400 Growth ETF (IVOG - Free Report)

The underlying S&P MidCap 400 Growth Index measures the performance of growth stocks of medium-size U.S. companies. The Zacks Rank #2 (Buy) fund charges 15 bps in fees.

Invesco NASDAQ Internet ETF (PNQI - Free Report)

The underlying Nasdaq CTA Internet Index is a modified market-capitalization weighted index designed to track the performance of the largest & most liquid U.S.-listed companies engaged in Internet-related businesses & that are listed on one of the three major U.S. stock exchanges. The Zacks Rank #2 fund charges 60 bps in fees.

Vident U.S. Equity Strategy ETF (VUSE - Free Report)

The underlying Vident U.S. Quality Index is a rules-based, systematic strategy index comprising equity securities principally traded in the U.S. market of issuers domiciled in the United States. The Zacks Rank #2 fund charges 50 bps in fees.


 

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