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Planning to "Sell in May?" Here Are 5 ETFs to Buy Instead
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After a volatile April, Wall Street has stepped into the defamed May. Defamed, because there is an old adage, “sell in May and go away.” With April starting on a steeply negative note (due to trade tensions) but later recouping some of the losses, Wall Street will be striving hard to make an ascent in May, but the operating environment is not all smooth this time around either.
Note that, overall, the S&P 500 lost 1.8% in April, the Dow Jones retreated 3.7%, the Nasdaq Composite was off 0.9% and the Russell 2000 plunged about 4% (read:5 Quality ETFs Topping S&P 500 Past Month)..
Tariff tensions, chances of renewed inflation, the resultant less-dovish Fed cues, geopolitical tensions in the Middle East and East Europe, have been bothering the investment world. Global growth worries are rife now. If this is not enough, the U.S. economy shrank for the first time since early 2022.
U.S. Economy Contracts for First Time in Three Years
The U.S. economy shrank for the first time since early 2022, with gross domestic product (GDP) contracting at an annualized rate of 0.3% in Q1 2025, according to the advance estimate from the Bureau of Economic Analysis (BEA). This decline was steeper than the 0.2% drop expected by economists surveyed by Bloomberg and a significant reversal from the 2.4% growth rate in Q4 2024.
Imports Surge Ahead of Tariffs, Dragging on GDP
A sharp increase in imports played a key role in the contraction. Imports — which are subtracted in the calculation of GDP — surged at an annualized rate of 41.3%, as businesses rushed to front-load orders ahead of new tariffs proposed by the Trump administration. This jump in imports contributed a negative 5% to the overall GDP figure for the quarter.
Final Domestic Demand Remains Resilient
Despite the headline contraction, domestic demand showed strength. Final sales to domestic purchasers — a key measure of consumer and business demand within the U.S. — increased at a 3% annualized rate, slightly higher than the 2.9% growth in the previous quarter.
Inflation Pressures Intensify
Inflation accelerated during the first quarter. The Personal Consumption Expenditures (PCE) price index rose 3.6% compared to a 2.4% increase in Q4 2024. Core PCE, which excludes volatile food and energy costs, rose 3.5%, exceeding the forecast of 3.2% and increasing from 2.6% in the previous quarter. Economists and the Fed expect tariffs to further raise inflation and weigh on growth in future quarters.
Private Payroll Growth Slows Sharply
Adding to economic concerns, ADP data released the same day showed that private sector payrolls rose by only 62,000 jobs in April, far below the expected 115,000. The report described the labor market as operating in a “difficult” environment, marked by rising confusion among businesses.
Markets React Negatively to Economic Data: Will Fed Cut Rates?
Markets responded negatively to the weak GDP and payroll numbers.However, if the U.S. economy starts coming up with back-to-back downbeat releases that can trigger economic woes, the timing of the future Fed rate cuts may come forward. Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
Aerospace & Defense ETFs have been steady lately despite market woes. The sector still holds strength and has the potential to stay steady in the coming days. Continued geopolitical tension, an increase in defense budget, and a decent valuation are tailwinds for the sector. The fund PPA added 3.8% over the past month (as of April 30, 2025).
The Japanese stocks have been giving decent performance this year. Although Bank of Japan has been hiking rates lately, they are still lower in that country. There have been notable increases in dividends and share buybacks, and a reduction in cross-shareholdings.
The average dividend payout ratio for the fiscal year ended March 2025 was probably 36%, up 3 percentage points from the previous year and the highest level in four years. The figure is on par with the U.S. component of the S&P 500 Stock Index (34%). The EWJ ETF gained 4.7% in April.
Invesco S&P International Developed Low Volatility ETF (IDLV - Free Report) – Zacks Rank #3
Wall Street has experienced massive volatility so far this year, while international markets have remained relatively stable or gained momentum. Trade uncertainty under the new U.S. administration has fueled concerns about rising inflation and a slowing U.S. economy, which has worked in favor of international markets.
Most international markets and ETFs have been undervalued in comparison to U.S. stocks and ETFs. The European Central Bank has been on a rate-cut spree. In contrast, the United States has taken a different approach as the Department of Government Efficiency has prioritized budget cuts, reducing federal expenditures rather than expanding them. The Fed has also been acting less dovish.
As a result, international low-volatility dividend ETFs have been in very good shape lately. The ETF IDLV yields 3.05% annually and charges 25 bps in fees. The fund gained 5.2% in April (read: 5 Country ETFs Up At Least 20% in Q1 2025).
Meta (META - Free Report) has about 20% exposure to the fund, while Alphabet (GOOGL - Free Report) has about 12% focus. Both companies have come up with upbeat earnings this reporting season. Meta offered a strong Q2 outlook despite fears of tariff-influenced ad slowdown.
However, Alphabet expects a ‘slight headwind’ to the ads business this year. However, the company still plans to spend $75 billion in capital, despite tariff tensions. The VOX ETF has gained 3.6% past week, although the fund was off 1.8% in April.
Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track record of stable or rising sales and earnings growth. These stocks thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. The ETF QUAL has added 3.9% over the past week, but dipped a modest 0.2% in April.
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Planning to "Sell in May?" Here Are 5 ETFs to Buy Instead
After a volatile April, Wall Street has stepped into the defamed May. Defamed, because there is an old adage, “sell in May and go away.” With April starting on a steeply negative note (due to trade tensions) but later recouping some of the losses, Wall Street will be striving hard to make an ascent in May, but the operating environment is not all smooth this time around either.
Note that, overall, the S&P 500 lost 1.8% in April, the Dow Jones retreated 3.7%, the Nasdaq Composite was off 0.9% and the Russell 2000 plunged about 4% (read:5 Quality ETFs Topping S&P 500 Past Month)..
Tariff tensions, chances of renewed inflation, the resultant less-dovish Fed cues, geopolitical tensions in the Middle East and East Europe, have been bothering the investment world. Global growth worries are rife now. If this is not enough, the U.S. economy shrank for the first time since early 2022.
U.S. Economy Contracts for First Time in Three Years
The U.S. economy shrank for the first time since early 2022, with gross domestic product (GDP) contracting at an annualized rate of 0.3% in Q1 2025, according to the advance estimate from the Bureau of Economic Analysis (BEA). This decline was steeper than the 0.2% drop expected by economists surveyed by Bloomberg and a significant reversal from the 2.4% growth rate in Q4 2024.
Imports Surge Ahead of Tariffs, Dragging on GDP
A sharp increase in imports played a key role in the contraction. Imports — which are subtracted in the calculation of GDP — surged at an annualized rate of 41.3%, as businesses rushed to front-load orders ahead of new tariffs proposed by the Trump administration. This jump in imports contributed a negative 5% to the overall GDP figure for the quarter.
Final Domestic Demand Remains Resilient
Despite the headline contraction, domestic demand showed strength. Final sales to domestic purchasers — a key measure of consumer and business demand within the U.S. — increased at a 3% annualized rate, slightly higher than the 2.9% growth in the previous quarter.
Inflation Pressures Intensify
Inflation accelerated during the first quarter. The Personal Consumption Expenditures (PCE) price index rose 3.6% compared to a 2.4% increase in Q4 2024. Core PCE, which excludes volatile food and energy costs, rose 3.5%, exceeding the forecast of 3.2% and increasing from 2.6% in the previous quarter. Economists and the Fed expect tariffs to further raise inflation and weigh on growth in future quarters.
Private Payroll Growth Slows Sharply
Adding to economic concerns, ADP data released the same day showed that private sector payrolls rose by only 62,000 jobs in April, far below the expected 115,000. The report described the labor market as operating in a “difficult” environment, marked by rising confusion among businesses.
Markets React Negatively to Economic Data: Will Fed Cut Rates?
Markets responded negatively to the weak GDP and payroll numbers.However, if the U.S. economy starts coming up with back-to-back downbeat releases that can trigger economic woes, the timing of the future Fed rate cuts may come forward. Against this backdrop, we highlight a few ETFs that could shower gains on investors in an otherwise defamed May.
ETFs in Focus
Invesco Aerospace & Defense ETF (PPA - Free Report) – Zacks Rank #3 (Hold)
Aerospace & Defense ETFs have been steady lately despite market woes. The sector still holds strength and has the potential to stay steady in the coming days. Continued geopolitical tension, an increase in defense budget, and a decent valuation are tailwinds for the sector. The fund PPA added 3.8% over the past month (as of April 30, 2025).
iShares Currency Hedged MSCI Japan ETF (EWJ - Free Report) – Zacks Rank #3
The Japanese stocks have been giving decent performance this year. Although Bank of Japan has been hiking rates lately, they are still lower in that country. There have been notable increases in dividends and share buybacks, and a reduction in cross-shareholdings.
The average dividend payout ratio for the fiscal year ended March 2025 was probably 36%, up 3 percentage points from the previous year and the highest level in four years. The figure is on par with the U.S. component of the S&P 500 Stock Index (34%). The EWJ ETF gained 4.7% in April.
Invesco S&P International Developed Low Volatility ETF (IDLV - Free Report) – Zacks Rank #3
Wall Street has experienced massive volatility so far this year, while international markets have remained relatively stable or gained momentum. Trade uncertainty under the new U.S. administration has fueled concerns about rising inflation and a slowing U.S. economy, which has worked in favor of international markets.
Most international markets and ETFs have been undervalued in comparison to U.S. stocks and ETFs. The European Central Bank has been on a rate-cut spree. In contrast, the United States has taken a different approach as the Department of Government Efficiency has prioritized budget cuts, reducing federal expenditures rather than expanding them. The Fed has also been acting less dovish.
As a result, international low-volatility dividend ETFs have been in very good shape lately. The ETF IDLV yields 3.05% annually and charges 25 bps in fees. The fund gained 5.2% in April (read: 5 Country ETFs Up At Least 20% in Q1 2025).
Vanguard Communication Services ETF (VOX - Free Report) -- Zacks Rank #3
Meta (META - Free Report) has about 20% exposure to the fund, while Alphabet (GOOGL - Free Report) has about 12% focus. Both companies have come up with upbeat earnings this reporting season. Meta offered a strong Q2 outlook despite fears of tariff-influenced ad slowdown.
However, Alphabet expects a ‘slight headwind’ to the ads business this year. However, the company still plans to spend $75 billion in capital, despite tariff tensions. The VOX ETF has gained 3.6% past week, although the fund was off 1.8% in April.
VanEck MSCI International Quality ETF (QUAL - Free Report) -- Zacks Rank #3
Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track record of stable or rising sales and earnings growth. These stocks thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. The ETF QUAL has added 3.9% over the past week, but dipped a modest 0.2% in April.