After a superb Trump rally in the first two months of 2017, Wall Street carried on the winning momentum to start the historically sturdy third month of the year. Hopes of ‘massive’ tax cuts, plenty of job creation and deregulations are taking markets to new all-time highs almost every day.
While hopes are still high in the broader market, a few concerns have started peeking in. Investors are getting cautious about anemic GDP growth data in the fourth quarter of 2016 and overvaluation in stocks following a stupendous rally post Trump win.
Note that the forward price-earnings (P/E) ratio for the S&P 500 companies now stands at around 17.6x – the highest since
June 2004, higher than the 5-year and 10-year averages of 15x and 14x, respectively, as per the source.
But then March is a seasonally strong month for stocks. A consensus carried out from 1950 to 2016 shows that January ended up offering positive stock returns in 43 years and negative returns in 24 years, per
moneychimp.com, with an average return of positive 1.14%.
This kind of a situation makes it more important to pin point ETFs that can safeguard investors from any unexpected fall and sudden market swing as well as earn some gains. So, investors can have a look at the below-mentioned ETF choices:
iShares U.S. Home Construction ETF ( ITB Quick Quote ITB - Free Report)
The housing sector is all set to enter the key spring selling season, which is considered to be the peak time for home sellers. Normally, the season starts in March and lasts through May – June thanks to warmer weather after a chilly winter and buyers’ tendency to move into a new house before the next
school calendar starts.
Plus, the recent data points of the sector came in favorable. Existing home sales, which make up the major portion of U.S. home sales, were back with a bang in January to reach a
10-year high. Buyers brushed aside fears of rising rates in the face of Fed policy tightening, which is likely to speed up this year, and higher home prices. Rather, they are trying to dip their toes in the housing market as long as the rates remain affordable. This puts Zacks Rank #1 (Strong Buy) ETF ITB on investors’ radar (read: Will Housing ETFs Gain from a Sales Boon or Suffer on Trump Woes?). iShares MSCI India Small-Cap ETF ( SMIN Quick Quote SMIN - Free Report)
India came up with upbeat GDP growth data of 7% in the October–December quarter despite demonetarization which led many to downgrade the outlook on the economy. The expansion breezed past economists’ expectations
of 6.4%. This data should spur investors’ optimism around small-cap stocks as capitalization better reflects the domestic economy. The fund has a Zacks ETF Rank #1 (read: Will Indian ETFs Shine Under the Trump Presidency?). PowerShares KBW Bank ETF ( KBWB Quick Quote KBWB - Free Report)
The financial sector enjoys the
seasonal tailwind in March. Plus, with the possibility of another Fed rate hike in March doing rounds, banking stocks are likely to benefit from a rising rate environment. Major banks have already come up with strong earnings reports in the latest reporting cycle, clearing the path for the banking ETF to outperform. KBWB also has a Zacks Rank #1 (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?). Fidelity Dividend ETF for Rising Rates ( FDRR Quick Quote FDRR - Free Report)
With rising rate concerns prevailing in the U.S. market, FDRR could be a great pick. The fund looks to track the performance of stocks of large- and mid-cap dividend-paying companies that are expected to continue to pay and hike their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields (read:
Fidelity's New Smart Beta Lineup for Any Market Condition). ProShares MSCI Europe Dividend Growth ETF( EUDV Quick Quote EUDV - Free Report)
European stocks are making a comeback lately with the economy gathering steam, corporate earnings recording impressive gains and stocks trading at a compelling valuation. Though the continent is due for a host of elections in the near-to-medium term, massive upheaval or political volatility seems less likely (read:
3 Reasons to Buy Eurozone ETFs Now).
So, investors can pick EUDV which considers financially strong companies that have hiked dividends each year for at least 10 years. This quality approach would shield investors against any likely volatility.
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