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After scaling multiple highs in the third quarter, U.S. stocks continued their stellar run in the fourth quarter with the Dow Jones, the S&P 500, the Nasdaq and the Russell 2000 closing at a new record for two consecutive days. The solid start to the fourth quarter came on the back of upbeat economic data that has instilled confidence in the economy.

This is especially true as manufacturing activity, as measured by the Institute for Supply Management, reached a 13-year high in September due to strong gains in new orders and raw material prices. Auto sales strongly rebounded in September posting the best month of the year after the eighth consecutive month of decline. Additionally, renewed hopes of tax cuts by the end of the year led to increased optimism. Trump has proposed the biggest U.S. tax overhaul in three decades (read: 6 ETFs Set to Win on Trump's Tax Reform).

Added to the strength is the solid expectation for Q3 earnings. Per Zacks, total Q3 earnings for the S&P 500 index are expected to be up 3.2% from the same period last year while it is expected to rise 5.5% according to Thomson Reuters research.

However, volatility will continue to block the bulls in the final quarter of 2017 given stretched valuations, geopolitical tension, instability in Europe resulting from tensions in Catalonia, and Washington turmoil.

Against such a backdrop, investors could be well served by looking at the ETFs and stocks of the top-performing sectors.

How to Find the Top-Performing Sectors

While identifying the top-performing sector is a daunting task, the Zacks Industry Rank makes this process simpler. The Zacks Industry Rank is determined by calculating the average Zacks Rank for each stock in the industry and then assigning a rank to it. So first, we selected the best industries that have a top Zacks Rank.

A top Zacks Industry Rank means that more stocks within that group are seeing upward earnings estimate revisions. Since an industry is a group of stocks in a similar business, this is the perfect way to size it up (read: all the Top Ranked ETFs).

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook of the constituent companies in each. Lower scores are always better. Industries with ranks of 2.00–2.64 and 2.65–2.81 are very attractive and attractive, respectively, and are thus the top-performing ones.

Automotive

The most attractive industries under this sector are foreign and domestic automotive as well as replacement parts. The sector strongly rebounded in September, which was the best month for auto sales this year amid heavy discounts, higher fleet sales, and surging demand to replace hurricane-damaged vehicles. The trend is likely to continue on a strengthening economy crowded with accelerating job gains, rising wages, increasing consumer spending and growing consumer confidence.

First Trust NASDAQ Global Auto ETF (CARZ - Free Report) : This fund offers a pure play global exposure to 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is a large-cap centric fund with higher exposure to the top five firms at nearly 8% share each while the other firms hold no more than 4.15% of assets. In terms of country exposure, Japan takes the top spot at 33.5% while the U.S. and Germany round off the next two spots with 22% and 18.8% share, respectively. CARZ has a lower level of $18.2 million in AUM and trades in a small average daily trading volume of around 4,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Auto ETF Hits New 52-Week High).

Honda Motor Company Ltd (HMC - Free Report) : This Zacks Rank #1 (Strong Buy) company manufactures a wide range of products, including motorcycles, ATVs, generators, marine engines, lawn and garden equipment and automobiles. It saw positive earnings estimate revisions by four cents for this fiscal year in the past 30 days, and has an expected growth rate of 6.39%. The stock has a VGM Style Score of A.

Technology

The technology sector is the best performing sector so far this year. A rising rate environment, improving industry fundamentals, and emerging technologies such as wearables, VR headsets, drones, virtual reality devices, and artificial intelligence are the key catalysts to the sector’s growth. As such, semiconductors, miscellaneous technology and electronics fall under the most attractive industries and are expected to continue outperforming followed by computer software services.

First Trust NASDAQ-100-Technology Sector Index Fund (QTEC - Free Report) : This ETF offers broad exposure to the sector by tracking the NASDAQ-100 Technology Sector Index. It holds 34 stocks in its basket with none holding more than 3.45% of assets. From an industry look, semiconductors dominates the list with 43.1% share while software accounts for 26.8% share. QTEC is a large-cap centric fund with AUM of $2.1 billion and average daily volume of around 195,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #1 with a High risk outlook.

Micron Technology Inc. (MU - Free Report) : This Zacks Rank #1 company is one of the leading worldwide providers of semiconductor memory solutions. It saw solid earnings estimate revision of $1.44 for this fiscal year in the past one month, with an expected growth rate of 49.95%. The stock has a VGM Style Score of A (read: Here's What Investors Need to Know About Soaring Semiconductor ETFs).

Consumer Staples

The consumer staples sector is expected to outperform with meat products at the top, followed by alcohols and soap cosmetics. The sector is directly linked with accelerating economic activities, in particular spending power, which has increased owing to cheap fuel and rising income.

PowerShares DWA Consumer Staples Momentum Portfolio (PSL - Free Report) : With AUM of $68.2 million, the fund provides exposure to 37 stocks having positive relative strength (momentum) characteristics by tracking the DWA Consumer Staples Technical Leaders Index. It is pretty spread out across securities, with each holding less than 5.8% of assets. Food products, diversified consumer services and beverages are the key industries having double-digit exposure each. It trades in a lower volume of 5,000 shares a day on average and charges 60 bps in annual fees. The product has a Zacks ETF Rank #2 with a Medium risk outlook.

Pilgrim's Pride Corporation (PPC - Free Report) : This Zacks Rank #1 company is one of the largest chicken companies in the United States, Mexico and Puerto Rico. It saw no earnings estimate revision for this year in the past one month but is expected to see strong growth of 47.14%. The stock has a VGM Style Score of B.

Materials

The materials sector got a bump from the expansion of the China’s supply-side reform program into other sectors of the economy, such as agriculture, power, cement, glass, rare earth materials and aluminum that pushed up prices for raw materials. The trend is expected to continue in the final quarter with the chemicals and steel industries having attractive ranks (read: 5 Sector ETFs for Revenue Growth Play).

Materials Select Sector SPDR (XLB - Free Report) : The most popular material ETF follows the Materials Select Sector Index. This fund manages about $4.1 billion in its asset base and trades in volumes as heavy as around 4.1 million. It charges 14 bps in fees per year from investors. In total, the fund holds about 25 securities in its basket with heavy concentration on DowDuPont at 23.1%. In terms of industrial exposure, chemicals dominates the portfolio with 73% share while containers & packaging, and metals & mining round off the top three positions. XLB has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

The Chemours Company (CC - Free Report) : This Zacks Rank #1 company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. The stock saw no earnings estimate revision for this year in the past 30 days but is expected to see a whopping earnings growth of 255.39%. The stock has a VGM Style Score of B.

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