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ETF Market Outlook for Q4 2019

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  • (0:45) - Overview of 2019 Stock Market Performance
  • (3:30) - Should We Expect More Rate Cuts This Year?
  • (6:45) - What Sectors Should Investors Be Watching?
  • (13:50) - What Trends Are We Seeing From The Recent Rotation?
  • (19:20) - Bond ETFs Popularity With Investors
  • (25:40) - Why Are Fees So Important For ETFs
  • (28:50) - Understanding What The New ETF Rule Means
  •                 Podcast@Zacks.com

In this episode of ETF Spotlight, I speak with Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors. We discuss the outlook and best strategies for the fourth quarter of 2019.

Despite trade and political uncertainty, stocks are close to their record highs. The S&P 500 ETF (SPY - Free Report) has gained about 19% this year—its best performance in the first three quarters of a year since 1997. However, most of these gains came earlier this year. Third quarter was pretty volatile.

What lies ahead for the market?

The US economy remains on solid footing thanks mainly to a strong consumer and there appears to be little risk of an imminent recession. However, some of the recent economic reports have been lackluster. It also appears that we are in the late cycle environment, with flat or inverted yield curve and falling corporate profit margins.

The Fed cut interest rates by 25 basis points at its September meeting. There were three dissents though, for the first time since 2016.

Where is US economy headed in Q4? Should we expect more rate cuts by the Fed this year?

Technology is the best performing sector year-to-date, the Technology Select Sector SPDR ETF (XLK - Free Report) is up about 31%, and healthcare is among the worst, the Health Care Select Sector SPDR ETF (XLV - Free Report) has gained just about 4%.

REITs and Utilities have also delivered strong performance this year as income focused investors found them attractive. The Real Estate Select Sector SPDR ETF (XLRE - Free Report) and Utilities Select Sector SPDR ETF (XLU - Free Report) have gained 27% and 22% respectively.

Which sectors are expected to outperform in Q4?

In early September, we saw some rotation out of hot areas of the market into out-of-favor areas like small caps and value but the trend was short-lived.

Looking at valuations, US mid-caps have exhibited attractive valuation on both absolute and relative terms, per State Street. The SPDR S&P MIDCAP 400 ETF (MDY - Free Report) has significantly outperformed both the large caps and small caps over the long term but is overlooked by investors.

Bond ETFs have seen huge inflows this year. Are there any opportunities in the fixed income space?

ETF fee wars have been escalating as investors have become increasingly cost-conscious. However, they sometimes forget to look beyond expense ratio when evaluating ETF costs. Why should investors look at the total cost of ownership?

To learn more about these ETFs, please visit us.spdrs.com.

Make sure to be on the lookout for the next edition of ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com

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