Brushing aside the fears of global growth slowdown and still-unresolved US-China trade dispute, stocks soared in June buoyed by big bets on a Fed rate cut this year. The S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite have gained about 4.4%, 4.7%, and 4.7%, respectively, in the past month (as of Jun 27). Amid such equity market ascent, a wealth effect is normally realized.
As per Investopedia, “the wealth effect helps to power economies during bull markets. Big gains in people's portfolios can make them feel more secure about their wealth and their spending.” Moreover, a dovish Fed means more months of cheap money inflows, which is expected to bolster consumer and business confidence and spending, which in turn translates into broad-based economic growth.
Dovish Fed comments brought down bond yields materially in June. Yield on benchmark 10-year U.S. Treasury yield stood at 2.01% on Jun 27, down from 2.66% recorded at the start of the year. Of late, parts of yield curve inverted amid recessionary fears. Investors should note that the Fed’s accommodative stance is beneficial to the overall stock market. However, the bump was more visible for cyclical stocks in June, per an article published on MarketWatch.
Cyclical stocks normally perfrom well in a growing economy. So, it seems that the underlying economic condition is not as grave as the yield curve protrays. In its June meeting, the Fed upgraded its forecast for 2020 real GDP growth from 1.9% in March to 2.0% but maintained the 2019 and 2021 growth forecast at 2.1% and 1.8%, respectively. Unemployment was guided down to 3.6% from 3.7% for 2019, 3.7% from 3.8% for 2020 and 3.8% from 3.9% for 2021 (read: ETF Winners & Losers Post Fed Meet).
Willie Delwiche, investment strategist at R.W. Baird, noted that investors’ interest in cyclical sectors indicate there is no “imminent threat to the economic cycle.” Against this backdrop, below we highlight a few cyclical sector ETF winners and some winning stocks from those sectors.
iShares MSCI Global Gold Miners ETF (RING) – Up 24.9%
The underlying MSCI ACWI Select Gold Miners Investable Market Index measures the equity performance of comps in both developed & emerging markets that derive the majority of their revenues from gold mining. The fund charges 39 bps in fees (read: Gold Mining ETFs & Stocks That Crushed the Market in May).
AngloGold Ashanti Limited AU – Up 49.2%
It is the largest gold producer at 7 million ounces a year, with reserves of 126 m oz. The stock sports a Zacks Rank #1 (Strong Buy) (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)– Up 9.8%
The underlying NASDAQ OMX Clean Edge Smart Grid Infrastructure Index includes companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software utilized by the smart grid infrastructure sector. The fund charges 70 bps in fees.
Real Goods Solar Inc. ) – Up 50.8%
The Zacks Rank #3 (Hold) company is a leading residential solar energy integrator. The stock comes from a top-ranked Zacks industry (top 28%).
SPDR S&P Semiconductor ETF (XSD) – Up 12.6%
The underlying S&P Semiconductor Select Industry Index represents the Semiconductor sub-industry portion of the S&P Total Markets Index. The Semiconductor Index is a modified equal weight index. The fund charges 35 bps in fees.
Vuzix Corporation (VUZI) – Up 72%
The Zacks Rank #3 (Hold) company is a supplier of Smart-Glasses and Augmented Reality (AR) technologies and products for the consumer and enterprise markets.
Amplify Online Retail ETF (IBUY) – Up 6.6%
The underlying EQM Online Retail Index utilizes a rules-based methodology to select a globally diverse group of companies with 70% or more of revenues from online and virtual sales. The fund charges 65 bps in fees (read: ETFs in Focus on Impressive Rise in May Retail Sales).
Bluegreen Vacations Corporation (BXG) – Up 40.9%
The Zacks Rank #3 (Hold) company markets, sells and manages timeshare resorts, urban destinations, clubs and residential lands. It has a VGM Score of B.
First Trust RBA American Industrial Renaissance ETF (AIRR) – Up 7.4%
The underlying Richard Bernstein Advisors American Industrial Renaissance Index is measures the performance of small and mid-cap US companies in the industrial and community banking sectors. The fund charges 70 bps in fees.
The Manitowoc Company Inc. MTW – Up 7.4%
The Zacks Rank #2 (Buy) company is a leading manufacturer of cranes that serve the infrastructure, residential & commercial construction, petrochemical, industrial, power/utility and military end markets. The stock belongs to a top-ranked Zacks industry (top 7%).
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