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5 ETFs for January

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The broader market kicked off 2020 on an upbeat note after a smashing end to 2019. Both the S&P 500 and the Nasdaq posted their best numbers in a year since 2013. Also, the Dow Jones {although debilitated by Boeing’s BA weakness caused by 737 MAX crisis} marked its best year since 2017 (read: Wall Street to See Best Year Since 2013: Will ETF Rally Last?).

Factors that drove 2019 rally were the three Fed rate cuts, a massive global policy easing in the second half, announcement of the phase-one U.S.-China trade deal after almost two years of dispute, a deal on USMCA and the fading of Brexit uncertainty (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).

Against this backdrop, let’s take a look at what lies ahead for January this new year. January is traditionally a decent month for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2019 showed that January ended up offering positive returns in 42 years and negative returns in 28 years with the average return being a positive 0.98%. The average return is moderate when compared to some other strong months of the year.

Below we highlight a few ETFs that can be intriguing bets for the current month.

SPDR Dow Jones Industrial Average ETF (DIA - Free Report)

The Dow Jones industrial average has been up 27.3% in the past year (as of Jan 2, 2020), courtesy of a dovish Fed and cues of improvement in the Sino-U.S. trade relation. However, this blue-chip index lagged the S&P 500 (up 33.1% in the past year). With Boeing shares gaining ground on the resignation of its CEO, the Dow Jones may see a catch-up trade in 2020. A stable oil price scenario is another positive for this Zacks Rank #1 (Strong Buy) fund(read: Can Dow ETFs Be a Winner in 2020?).

Schwab U.S. Small-Cap ETF SCHA

Small-cap securities have historically proven their outperformances in January. “The January Effect is theorized to occur when investors sell winners to incur year-end capital gains taxes in December and use those funds to speculate on weaker performers,” per Investopedia. Small-cap stocks that lagged large caps in major part of 2019 are poised for a rebound now as the domestic economy is in good shape and the pint-sized stocks are closely-related to the health of the domestic economy. The fund sports a Zacks Rank of 1 (read: Top-Ranked Small-Cap ETFs to Buy for 2020).

Vanguard Mega Cap Growth ETF MGK

Receding global growth fears and liquidity-led rally in the global market on the back of immense policy easing should boost growth of the world economy. Business spending and manufacturing should shoot up once the U.S.-China trade deal and Brexit agreement get through. As a result, this Zacks #1 Ranked fund can be a good pick for January (read: Nasdaq Hits 9,000 for the First Time: ETFs to Benefit).

United States Brent Oil Fund LP BNO

Oil prices made a sharp comeback in 2019, having logged the highest yearly gains in three years. The deeper production cuts from OPEC and its allies on Dec 5 through the first quarter of 2020 should result in a spike in oil prices and help energy ETFs. The flare-up in geopolitical tension in the Middle East at the start of the year is another boon for the oil ETFs (read: Top-Performing Energy ETFs & Stocks of 2019).

ProShares Online Retail ETF ONLN

This holiday season emerged as one of the best with e-commerce bonanza. Per MasterCard Advisors' SpendingPulse, e-commerce sales bumped up 18.8% year over year, representing 14.6% of total retail sales. The growth is more than five times greater than overall holiday sales growth of 3.4%(read: Shop Online ETFs & Stocks for Black Friday & Beyond).

With the cold and frosty month likely to keep many consumers indoors and shop online, it’s better to play ONLN now than offline retail ETFs.

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