Even though escalating trade fears unnerved investors in recent months, the U.S. stock market is still hovering near record highs. This is especially true as the latest round of levies from both the United States and China have come in lower than expected and resulted in a market rally (read:
Wall Street Shrugs Off Trade Fears: 6 Large-Cap ETF Picks). Trump has imposed tariffs of 10% on $200 billion worth of Chinese goods starting Sep 24, much lower than 25% as expected. However, the taxes will be increased to 25% effective Jan 1. In retaliation, China slapped tariff of 10% (much lower than 20% touted) on more than 5,000 American products worth $60 billion. Additionally, the market is showing strong complacency backed by a booming economy and strong corporate earnings. The U.S. economy is witnessing the fastest pace of growth in nearly four years, with a nearly two-decade low unemployment rate of 3.9% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth. Meanwhile, earnings growth in the second quarter reached its highest level since 2010. The trend of double-digit growth is expected to continue in Q3 as well, per the latest Earnings Trends report. VIDEO
Aside from trade war fears, inflationary pressures are building up and rising rates will lead to a rise in borrowing costs, thereby hurting consumer spending and economic growth. This will result in continued volatility. As a result, investors could be well served by looking at the ETFs and stocks of the top-ranked 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. 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 into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank). The top 132 Zacks Ranked industries would be in the top 50% of all X-level industries, whereas the bottom 133 Zacks Ranked industries would be in the bottom 50%. Aerospace Aerospace is the most attractive sector at present with all the industries having a solid Zacks Rank in the top 35%. The sector is performing well on increased NATO defense spending, robust demand for passenger jets as well as earnings optimism. Earnings for the sector are projected to grow 18.27% for this year (read: Market-Beating, Top-Ranked ETFs of the Longest Bull Market). iShares U.S. Aerospace & Defense ETF (This fund provides investors exposure to the broad aerospace and defense industry by tracking the Dow Jones U.S. Select Aerospace & Defense Index. Holding 39 stocks, the fund is highly concentrated on the top firm, Boeing (BA), at 10.5% while other firms make up for no more than 8.13% share each. The fund has AUM of $6.1 billion while charging 43 bps in fees a year. Volume is good at around 273,000 shares. The ETF has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. ITA - Free Report) : Huntington Ingalls Industries Inc. ( This Zacks Rank #2 company is engaged in designing, building, overhauling, and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard, and provides after-market services for military ships around the globe. The stock has seen whopping earnings estimate revision of $1.04 for this year in the past 90 days and is expected to see earnings growth of 42.01%. The stock has a VGM Score of A. HII - Free Report) : Technology Technology is also appealing with electronics-power generation leading the way, followed by semiconductors-programmable logic, semiconductor equipment-photomasks, minicomputers and nanotechnology. It has been the top performing sector of this year and will likely continue its outperformance given expectations of strong earnings, improved overseas demand and innovative technologies. Additionally, the twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are fueling growth in the sector. Invesco DWA Technology Momentum ETF ( This fund follows the Dorsey Wright Technology Technical Leaders Index and provides exposure to companies that show relative strength (momentum). Holding 43 stocks in the basket, it is well diversified with each holding constituting less than 7.3% share. Software and Internet software & services take the largest share at 29.1% and 27.8%, respectively. PTF is illiquid and relatively unpopular with AUM of $159.3 million and average daily volume of 9,000 shares. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: PTF - Free Report) : September Rate Hike Odds Rise: Top Sector ETF & Stock Picks). Generac Holdings Inc. (This Zacks Rank #1 is a manufacturer of backup power generation products serving residential, light commercial and industrial markets. It has seen positive earnings estimate revisions of 38 cents for this year in the past 90 days, and has an expected growth rate of 21.47%. The stock has a VGM Score of B. You can see GNRC - Free Report) : . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Industrials The industrial product sector is also expected to outperform with manufacturing-print, metal products-fasteners, wire and cable products leading the way followed by manufacturing-thermal products and metal products-distribution. The sector will get a boost from a manufacturing surge, rising industrial output as well as Trump’s spending on infrastructure (read: ETFs & Stocks to Surge on Solid August Industrial Production). Industrial Select Sector SPDR ( This is the most popular ETF in the space with AUM of $13.7 billion and an average daily volume of nearly 11.9 million shares. The fund follows the Industrial Select Sector Index, holding 70 stocks in its basket with a relatively higher concentration on the top firm. About 27.7% of the assets is allocated to aerospace & defense, while industrial conglomerates, machinery, and road & rail make up for a double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook. XLI - Free Report) : Belden Inc (This Zacks Rank #2 company is engaged in the design, manufacture and retail of cable, connectivity, and networking products in markets including industrial automation, enterprise, transportation, infrastructure, and consumer electronics. It has seen solid earnings estimate revision of five cents for this year in the past three months and is expected to see growth of 19.44%. The stock has a VGM Score of A. BDC - Free Report) : Transport Transportation is also an attractive sector at present with trucking industry on the top, followed by rail, and equipment and leasing. Thanks to rising U.S. GDP, robust job gains, moderate wage growth, record consumer confidence and higher spending, a higher number of Americans have geared up for more air travel. SPDR S&P Transportation ETF ( This fund tracks the S&P Transportation Select Industry Index, holding 43 stocks in its basket with none holding more than 3.14% of assets. About 31.9% of the portfolio is dominated by trucking, while airlines, and airfreight & logistics round off the next spots with 26.3% and 22.3%, respectively. With AUM of $233.2 million, the fund charges 35 bps in fees per year from investors and trades in a lower volume of around 21,000 shares a day. However, XTN has a Zacks ETF Rank #4 (Sell) with a High risk outlook, suggesting that some pain might be in store (read: XTN - Free Report) : How to Prepare for Hurricane Season With ETFs & Stocks). ArcBest Corporation ( This Zacks Rank #1 company provides freight transportation services and solutions. It has seen solid earnings estimate revision of 25 cents for this year over the past 90 days, representing growth of 143.61% year over year. The stock has a Zacks Rank #1 with a VGM Score of A. ARCB - Free Report) : Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. 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