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Wall Street recorded a rally to close out last week as bets that the Fed is done raising rates strengthened on softer jobs data for the month October. Last week was Wall Street’s best week in 2023.
The S&P 500 advanced 5.9%, the Dow Jones added 5.1% and the Nasdaq surged 6.6% last week. U.S. benchmark treasury yields slumped to 4.57% on Nov 3 from 4.88% recorded at the start of the week.
Let’s delve a little deeper.
Labor Market Easing
The U.S. economy added 150,000 jobs in October, falling short of the 180,000-reading expected, with auto industry strikes acting as a catalyst, the Bureau of Labor Statistics said. The unemployment rate ticked higher to 3.9%. This somber jobs data strengthened bets that the Fed rates have peaked (read: Fed Stays Put: 5 Winning Tech ETFs).
Fed Stays Put
As expected, the Fed announced on Nov 1, 2023, that it would keep its benchmark interest rate within the range of 5.25% to 5.50%. This marks the highest interest rate level in over two decades. Though the central bank has left the door open for potential future actions as it continues to grapple with the persistent challenge of reining in inflation, the bets over such steps weakened lately.
CME FedWatch tool revealed that there is 95.2% chance of the rates remaining same in December (at the time of writing) and 91.2% chance that the Fed will again stay put in late-January.
Upbeat Q3 Corporate Earnings
Notably, third-quarter results from more than 80% of S&P 500 members are already out. Results have once again turned out to be better than expected. Investors should also note that Q3 earnings estimates had hardly budged ahead of the start of the reporting cycle, which makes the outperformance all the more significant. In fact, Q3 earnings growth is on track to turn positive, which follows three back-to-back quarters of declines.
Upbeat U.S. Q3 GDP Growth
The United States witnessed a substantial economic growth in the third quarter of 2023, with the real gross domestic product (GDP) growing at an annual rate of 4.9%, beating the economists’ expectations of 4.7%. Consumer spending was one of the main contributors to the U.S. GDP growth. The GDP increase marked the largest gain since the fourth quarter of 2021.
Consumer spending, as measured by personal consumption expenditures, improved 4% in the quarter after rising just 0.8% in Q2, and was responsible for 2.7 percentage points of the total GDP increase. The consumer was responsible for about 68% of GDP in Q3 (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).
Why Growth ETFs Are Likely to Rally
Traditionally, growth ETFs have performed well in periods of low interest rates as the borrowing costs for companies stay low, enabling them to invest in expansion and innovation. Rising rate concerns amid the Fed’s tightening cycle in the past one-and-a-half year (in order to tame high inflation) have weighed on high-growth sectors like technology lately. Small-caps and start-up companies have also been in a tight spot.
Now, the considerably higher chances of the peaked Fed rate hike cycle should bode well for growth investing. We have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy. After all, consumers’ savings rate and personal income are falling (read: Why You Should Tap Fintech ETFs & Stocks in the Holiday Season).
ETFs to Buy
Below we highlight a few growth ETFs that have Zacks Rank #2 (Buy) and have a lower P/E than the growth benchmark Nasdaq-100’s P/E of 22.70X.
The underlying S&P 500 Growth at a Reasonable Price Index is composed of securities with strong growth characteristics selected from the Russell Top 200 Index. The fund charges 34 bps in fees and yields 1.18% annually.
The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.
The underlying Growth Strength Index provides exposure to a mix of domestic equities with filters for liquidity, return on equity, long-term debt, revenue and cash flow growth. The fund charges 60 bps in fees.
The underlying Bloomberg Pricing Power Index composes of U.S. large and mid-capitalization companies that are well-positioned to maintain stable profit margins in all market conditions while focusing on companies that have the smallest deviations among their annual gross profit margins over the last five years. The fund charges 40 bps in fees.
Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) – 21.76X; Zacks Rank #2
The underlying NASDAQ Next Generation 100 Index comprises of securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index. The fund charges 15 bps in fees.
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Bet on 5 Low P/E Top-Ranked Growth ETFs
Wall Street recorded a rally to close out last week as bets that the Fed is done raising rates strengthened on softer jobs data for the month October. Last week was Wall Street’s best week in 2023.
The S&P 500 advanced 5.9%, the Dow Jones added 5.1% and the Nasdaq surged 6.6% last week. U.S. benchmark treasury yields slumped to 4.57% on Nov 3 from 4.88% recorded at the start of the week.
Let’s delve a little deeper.
Labor Market Easing
The U.S. economy added 150,000 jobs in October, falling short of the 180,000-reading expected, with auto industry strikes acting as a catalyst, the Bureau of Labor Statistics said. The unemployment rate ticked higher to 3.9%. This somber jobs data strengthened bets that the Fed rates have peaked (read: Fed Stays Put: 5 Winning Tech ETFs).
Fed Stays Put
As expected, the Fed announced on Nov 1, 2023, that it would keep its benchmark interest rate within the range of 5.25% to 5.50%. This marks the highest interest rate level in over two decades. Though the central bank has left the door open for potential future actions as it continues to grapple with the persistent challenge of reining in inflation, the bets over such steps weakened lately.
CME FedWatch tool revealed that there is 95.2% chance of the rates remaining same in December (at the time of writing) and 91.2% chance that the Fed will again stay put in late-January.
Upbeat Q3 Corporate Earnings
Notably, third-quarter results from more than 80% of S&P 500 members are already out. Results have once again turned out to be better than expected. Investors should also note that Q3 earnings estimates had hardly budged ahead of the start of the reporting cycle, which makes the outperformance all the more significant. In fact, Q3 earnings growth is on track to turn positive, which follows three back-to-back quarters of declines.
Upbeat U.S. Q3 GDP Growth
The United States witnessed a substantial economic growth in the third quarter of 2023, with the real gross domestic product (GDP) growing at an annual rate of 4.9%, beating the economists’ expectations of 4.7%. Consumer spending was one of the main contributors to the U.S. GDP growth. The GDP increase marked the largest gain since the fourth quarter of 2021.
Consumer spending, as measured by personal consumption expenditures, improved 4% in the quarter after rising just 0.8% in Q2, and was responsible for 2.7 percentage points of the total GDP increase. The consumer was responsible for about 68% of GDP in Q3 (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).
Why Growth ETFs Are Likely to Rally
Traditionally, growth ETFs have performed well in periods of low interest rates as the borrowing costs for companies stay low, enabling them to invest in expansion and innovation. Rising rate concerns amid the Fed’s tightening cycle in the past one-and-a-half year (in order to tame high inflation) have weighed on high-growth sectors like technology lately. Small-caps and start-up companies have also been in a tight spot.
Now, the considerably higher chances of the peaked Fed rate hike cycle should bode well for growth investing. We have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy. After all, consumers’ savings rate and personal income are falling (read: Why You Should Tap Fintech ETFs & Stocks in the Holiday Season).
ETFs to Buy
Below we highlight a few growth ETFs that have Zacks Rank #2 (Buy) and have a lower P/E than the growth benchmark Nasdaq-100’s P/E of 22.70X.
Invesco S&P 500 GARP ETF (SPGP - Free Report) – 10.79X; Zacks Rank #2
The underlying S&P 500 Growth at a Reasonable Price Index is composed of securities with strong growth characteristics selected from the Russell Top 200 Index. The fund charges 34 bps in fees and yields 1.18% annually.
Invesco S&P 500 Pure Growth ETF (RPG - Free Report) – 12.94X; Zacks Rank #2
The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.
First Trust Growth Strength ETF (FTGS - Free Report) – 15.64X; Zacks Rank #2
The underlying Growth Strength Index provides exposure to a mix of domestic equities with filters for liquidity, return on equity, long-term debt, revenue and cash flow growth. The fund charges 60 bps in fees.
Invesco Bloomberg Pricing Power ETF (POWA - Free Report) – 15.64X; Zacks Rank #2
The underlying Bloomberg Pricing Power Index composes of U.S. large and mid-capitalization companies that are well-positioned to maintain stable profit margins in all market conditions while focusing on companies that have the smallest deviations among their annual gross profit margins over the last five years. The fund charges 40 bps in fees.
Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) – 21.76X; Zacks Rank #2
The underlying NASDAQ Next Generation 100 Index comprises of securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index. The fund charges 15 bps in fees.