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4 Top-Ranked Cyclical Sector ETFs & Stocks for Q4

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Brushing aside fears of global growth slowdown, stocks lately hit new highs buoyed by cues of a U.S.-China mini trade deal and global policy easing.  “The stocks most exposed to the China trade war are back to prior peaks – and pre-trade war/1Q18 levels – in terms of both performance and valuation,” per Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.

Cyclical stocks have mainly been aiding the recent rally. These stocks are tied closely to economic ups and downs and have been hitting highs of late. Investors should note that post-World War II, the S&P 500 has averaged a 3.8% return in the fourth quarter, per Forbes. This breezes past the average first-quarter return of 2.2%, average second-quarter return of 1.9% and third-quarter return of 0.5%.

Time to Play the Wealth Effect?

The S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite have added about 6.7%, 6.9%, and 7.1%, respectively, in the past three months (as of Nov 19). Signs of ebbing trade tensions and a decent earnings season pushed the indexes higher. If the ascent is maintained, a wealth effect can be realized.

As per Investopediathe 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.” Still-solid spending should translate into broad-based economic growth.


The technology sector is on a tear lately. Emerging new technologies like cloud computing, big data and Internet of Things are expected to drive the sector. Per the Earnings Trends issued on Nov 13, 2019, about 79.1% of the technology sector of the S&P 500 reported earnings with a blended beat ratio of 58.5%. So, investors can definitely play the Zacks Rank #1 (Strong Buy) Technology Select Sector SPDR Fund (XLK - Free Report) (read: ETF Asset Report of Last Week: U.S. Stocks a Hit).

Baidu Inc. BIDU appears a solid pick. The Zacks Rank #1 stock is a Chinese-language Internet search provider. It belongs to a favorable Zacks industry (placed at the top 34% of 250+ industries).

Consumer Discretionary

The consumer discretionary sector has come up with a moderate beat ratio of 53.3%, and the space recorded 3.4% expansion in earnings and 12.5% growth in revenues. Expectations of a decent holiday shopping season are also likely to boost consumer socks.

Total retail sales are expected to grow between 4.5% and 5% during the holiday period, up from 3.1% recorded in 2018, according to Deloitte's annual holiday forecast. So, one can bet on the Zacks Rank #2 (Buy) Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) (read:Are Investors "Buying Dreams," Not Earnings? ETFs to Play).

Investors can bet on Crocs Inc. (CROX - Free Report) , which offers a broad portfolio of all-season products for men, women and children, has a Zacks Rank #1. The stock comes from a favorable Zacks industry (top 35%).


The narrowing wage differential between developed and emerging economies, moderate strengthening of the U.S. dollar against a basket of emerging currencies, President Trump’s efforts f bringing back manufacturing jobs to America and a dovish Fed should bode well for the sector. Industrial stocks are red hot now and hit a level not seen since 2018 probably on easing trade tensions. The Zacks Rank #1 Industrial Select Sector SPDR Fund (XLI - Free Report) could thus be a great pick.

Zacks Rank #1 stock Unifi Inc. (UFI - Free Report) comes from a favorable Zacks industry (top 1%). It is a global textile solutions provider and one of the world's leading innovators in manufacturing synthetic and recycled performance fibers.


One of the best S&P 500 sectors over the past decade in the fourth quarter has been the S&P financial sector. The sector posted an average return of about 6% and traded positively 90% of the time. Trading business of big financial services companies should see gains in the fourth quarter as the stocks are soaring this quarter. Notably, consumer-facing businesses stood out in the third quarter at Citi, JPMorgan and Bank of America, with all three showing strong credit card receipts.

All financial companies have reported their earnings this season. Blended beat ratio was 50.5% while there was earnings growth of 3% and revenue growth of 9.3%. Vanguard Financials ETF (VFH - Free Report) , a Zacks Rank #2 fund, is a good bet in this regard.

Zacks Rank #1 stock Cohen & Steers Inc (CNS - Free Report) is worth investing in. It comes from a favorable Zacks industry (top 40%). It is an investment manager, focusing on liquid real assets, including real estate securities, commodities and natural resource equities, and preferred securities.    

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