Braving all the woes including recession fears, geopolitical tensions, U.S.-China trade spat and talks of Trump impeachment, Wall Street has been on a spectacular run this year with all the three major indices hitting multiple highs. The strong rally was driven by a dovish Fed and trade optimism. Additionally, better-than-expected earnings also drove the market.
Below we discuss some of the events that dominated the headlines in 2019 and are worth watching in 2020:
Trade & Tariff
Trade fears abated after the phase one deal was agreed upon by the world’s two largest powers.
In the preliminary deal, China committed to buy $40 billion of American agricultural products annually, tighten measures for protecting American intellectual property and stop forcing American companies to transfer their technology while doing business in China. In return, President Donald Trump agreed to halt the planned tariffs on $156 billion of Chinese goods that were due to take effect from Dec 15 onward and cut tariffs from 15% to 7.5% on $120 billion of Chinese goods that were imposed in September.
However, the 25% tariff on $250 billion worth of Chinese imports levied in March 2018 will be intact. The deal is expected to be signed in early January and has allayed fears of global slowdown, instilling confidence in the market. U.S. Trade Representative Robert Lighthizer stated that the deal will boost U.S. exports to China by $100 billion in 2021, nearly double the current levels (read: A Bunch of Top-Ranked Mega Cap ETFs to Bet on for 2020).
While most corners of the market are set to explode higher, sectors that are the most sensitive to trade issues like technology and industrial seem to be the biggest beneficiaries. In particular, chip stocks dominate the list of tech sector players with large sales exposure to China. As such, an ETF from these two segments could be the best option to load up for 2020. In particular, VanEck Vectors Semiconductor ETF (SMH - Free Report) and Invesco DWA Industrials Momentum ETF (PRN) could be intriguing. The duo has a Zacks ETF Rank #2 (Buy) and have gained 68.5% and 34.9%, respectively, in the year-to-date timeframe.
A Dovish Fed
The Fed has slashed interest rates three times this year by 25 bps each — July, September and October — to sustain a decade-long economic expansion. Additionally, the central bank hinted to keep the interest rates unchanged for 2020 unless there is any drastic change in the economic outlook. Lower interest rates have made borrowings cheaper, providing a boost to both investment in new projects and repayment of a higher-rate debt (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).
As a result, rate-sensitive sectors such as utilities and real estate are expected to benefit from a lower rates environment. Some of the top-ranked ETFs in these spaces are Vanguard Real Estate ETF (VNQ - Free Report) , Schwab US REIT ETF (SCHH - Free Report) , Utilities Select Sector SPDR (XLU - Free Report) and Vanguard Utilities ETF (VPU - Free Report) . These have a Zacks ETF Rank #2.
Wall Street Hits New Milestone
Boosted by the bullish fundamentals, Wall Street has hit a series of record highs in recent months. The S&P 500 breached the 3,200 level for the first time ever this month while the Dow Jones topped the 28,000 milestone last month. Meanwhile, the Nasdaq also broke the 9,000 level. The bullish trend is likely to continue heading into the New Year powered by the Fed’s accommodative interest-rate policy and a resilient domestic economy. The U.S. economy is on a strong growth path with job additions at the fastest pace this year and unemployment dropping to the lowest level since 1969.
So, betting on any top-ranked ETFs tracking these indices could be the solid choices for investors. SPDR S&P 500 (SPY - Free Report) , SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and Invesco QQQ (QQQ - Free Report) are the proxies to play the three major indices — S&P 500, Dow Jones and Nasdaq, respectively. SPY has a Zacks ETF Rank #1 (Strong Buy) and the rest have a Zacks ETF Rank #2 (read: 9 ETFs at the Forefront of 2019 Market Rally).
Tech Remains Top Spot
The technology sector as represented by the S&P 500 information technology sector is on track to post the best year in a decade powered by soaring semiconductor stocks and Apple (AAPL - Free Report) surge. The index is up more than 48% year to date and is likely to continue its uptrend in 2020 given the rollout of 5G-capable phones that will add gains for device makers and their supply chain providers.
Therefore, investors could continue their bullish bet on the sector or initiate new positions with the help of top-ranked ETFs that have led the market this year. VanEck Vectors Semiconductor ETF (SMH - Free Report) , SPDR S&P Semiconductor ETF (XSD - Free Report) , Technology Select Sector SPDR Fund (XLK - Free Report) and Vanguard Information Technology ETF (VGT - Free Report) (read: A Look Back At S&P 500 Sector ETFs in 2019).
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