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4 ETFs to Play the Key Events in Q4

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Wall Street may have taken a beating at the start of October but the fourth quarter has mostly been favorable for investors. The S&P 500 rises about 4.3% in the fourth quarter, per Barron’s, making it the best quarter of the year.

Over the past decade, the S&P 500 Index has averaged a 4% gain in the fourth quarter of 2018, according to a CNBC analysis of Kensho. The S&P 500 had traded positively 80% of the time. The Dow Jones Industrial Average had gained 5% in fourth quarters over the past 10 years, trading in the positive zone for 80% of the time.

“Over the past three decades back to 1989, the Dow (4.3%), S&P (3.6%) and Nasdaq (4.7%) all show gains in the fourth quarter, according to Kensho, and trade positive 75%–80% of the time,” per CNBC.

Key Events Scheduled for Q4

Holiday Season: The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.

Deloitte expects sales to increase between 4.5% and 5% from a year ago. E-commerce sales are expected to surge 14-18% year over year compared with sales rise of 11.2% in 2018. Low levels of unemployment coupled with sustained monthly job creation might encourage consumers to spend more during the holiday season.

Chances of a Fed Rate Cut: The Fed may cut rates at the Oct 29-30 meeting. In the past week, a 50-50 chance of a Fed rate cut almost went up to pricing in a move almost entirely. Such low rates should boost the broader market on cues of continued supply of cheap money. Subdued U.S. manufacturing probably has strengthened the bets of a rate cut in September (read: ETFs in Focus as US Manufacturing PMI Data Disappoints).

 4 ETFs to Buy

In this light, we highlight a few ETFs that could be great picks for the fourth quarter.

SPDR S&P Retail ETF (XRT - Free Report)

Investors should also note that the consumer discretionary sector is cyclical in nature, and normally performs better in a trending economy, irrespective of rate hike fear. The cyclicality of the sector and an expected surge in sales make XRT our choice.

iShares PHLX Semiconductor (SOXX - Free Report)

The technology sector has been in a great shape this year. Within the broader tech space, semiconductor, the value-centric traditional tech area gained an edge on a still-edgy investing backdrop. Demand for gadgets will remain high in the quarter. Electronics normally remain at the top of Black Friday bargains. Semiconductor companies like Apple’s suppliers should also benefit from this trend.

Invesco QQQ (QQQ - Free Report)

If the broader market gains in the fourth quarter, growth ETFs are likely to outperform. The underlying Nasdaq-100 Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq based on market capitalization. The fund QQQ boasts a Zacks Rank #1 (Strong Buy).

Industrial Select Sector SPDR Fund (XLI - Free Report)

Industrial sector has been one of the top performers of the fourth quarter over the last 10 years with an average return of around 6%, per CNBC. The fund XLI has Zacks ETF Rank #1.

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