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Forget Retail, Buy These 3 Sector ETFs This Holiday Season
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We are in the midst of the all-important Holiday Season. Normally, the time is prosperous for retailers’ business. Investors have a tendency to bet on retail and consumer discretionary stocks in this period. But 2023 has evolved differently.
We are going through an apparent transition period of Fed policy stance. The Fed has been tightening its policy since March 2022 with its hawkishness cooling down (along with falling inflation) as 2023 progressed. Bets are rife now that the Fed may not enact another 25-bp rate hike before March 2024. And it may even start cutting rates from late 2024. This has resulted in the relatively lower interest rates in the past few weeks.
Having said this, we would like to note that this year could be different as Middle East tensions are continuing. Demand worries persist in the oil patch despite OPEC+ output cuts. Some analysts are foreseeing an earnings recession. Fears of a global growth slowdown are present, especially with the Chinese economy going through a rough patch.
Having said all, we would like to note that American consumers are confident enough to survive any economic blow. Overall, the investing backdrop is mixed. Against this backdrop, below we highlight a few sector ETFs that could be great picks now.
Utility companies often are debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment (read: 5 Sector ETFs to Tap in Falling Rate Environment).
Shares of defense companies surged amid the fighting in Israel and Gaza. The war included rockets, infiltrations and the capture of soldiers, exacerbating tensions. Along with the renewed geopolitical crisis in the Middle East, still-decent valuation should boost aerospace and defense ETFs. Plus, the demand for airlines travel is expected to jump in 2024, per market experts. This might boost the demand for aerospace (read: Airlines ETF (JETS) to Surge in 2024 on Solid Travel Forecast?).
The sector’s price-to-book and price-to-sales are 2.31X and 1.70X, respectively, compared with the S&P 500’s data of 4.55X and 2.49X. All aerospace companies have reported third-quarter earnings. As much as 90.9% of companies surpassed earnings estimates and 72.7% topped revenue estimates. Projected EPS Growth of the sector is 13.12% versus 5.40% of the S&P 500.
Medical – Zacks Sector Rank #3 – Health Care Select Sector SPDR ETF (XLV - Free Report)
The sector boasts a safe-haven status amid market uncertainty related to the Fed’s next move and geopolitical crisis. Against this volatile backdrop, medical/healthcare investing makes sense. The job growth in the sector remains decent. About 98.3% of the medical companies in the S&P 500 have reported earnings so far, and 81.4% of them beat on earnings, while 67.8% surpassed revenue estimates, per Earnings Trends issued on Nov 29, 2023. Projected EPS Growth of the sector is 14.98% versus 5.40% of the S&P 500.
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Forget Retail, Buy These 3 Sector ETFs This Holiday Season
We are in the midst of the all-important Holiday Season. Normally, the time is prosperous for retailers’ business. Investors have a tendency to bet on retail and consumer discretionary stocks in this period. But 2023 has evolved differently.
We are going through an apparent transition period of Fed policy stance. The Fed has been tightening its policy since March 2022 with its hawkishness cooling down (along with falling inflation) as 2023 progressed. Bets are rife now that the Fed may not enact another 25-bp rate hike before March 2024. And it may even start cutting rates from late 2024. This has resulted in the relatively lower interest rates in the past few weeks.
Having said this, we would like to note that this year could be different as Middle East tensions are continuing. Demand worries persist in the oil patch despite OPEC+ output cuts. Some analysts are foreseeing an earnings recession. Fears of a global growth slowdown are present, especially with the Chinese economy going through a rough patch.
Having said all, we would like to note that American consumers are confident enough to survive any economic blow. Overall, the investing backdrop is mixed. Against this backdrop, below we highlight a few sector ETFs that could be great picks now.
Winning Sector ETFs in Focus
Utilities – Zacks Sector Rank #1 – iShares U.S. Utilities ETF (IDU - Free Report)
Utility companies often are debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment (read: 5 Sector ETFs to Tap in Falling Rate Environment).
Aerospace – Zacks Sector Rank #2 – iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
Shares of defense companies surged amid the fighting in Israel and Gaza. The war included rockets, infiltrations and the capture of soldiers, exacerbating tensions. Along with the renewed geopolitical crisis in the Middle East, still-decent valuation should boost aerospace and defense ETFs. Plus, the demand for airlines travel is expected to jump in 2024, per market experts. This might boost the demand for aerospace (read: Airlines ETF (JETS) to Surge in 2024 on Solid Travel Forecast?).
The sector’s price-to-book and price-to-sales are 2.31X and 1.70X, respectively, compared with the S&P 500’s data of 4.55X and 2.49X. All aerospace companies have reported third-quarter earnings. As much as 90.9% of companies surpassed earnings estimates and 72.7% topped revenue estimates. Projected EPS Growth of the sector is 13.12% versus 5.40% of the S&P 500.
Medical – Zacks Sector Rank #3 – Health Care Select Sector SPDR ETF (XLV - Free Report)
The sector boasts a safe-haven status amid market uncertainty related to the Fed’s next move and geopolitical crisis. Against this volatile backdrop, medical/healthcare investing makes sense. The job growth in the sector remains decent. About 98.3% of the medical companies in the S&P 500 have reported earnings so far, and 81.4% of them beat on earnings, while 67.8% surpassed revenue estimates, per Earnings Trends issued on Nov 29, 2023. Projected EPS Growth of the sector is 14.98% versus 5.40% of the S&P 500.