Wall Street suffered a bloodbath on Feb 24 because of the spike in coronavirus cases outside China that has fueled possibilities of the outbreak turning into an acute pandemic. Iran, Italy and South Korea reported a rise in infected cases over the weekend.
Goldman Sachs now expects the U.S. economy to expand only 1.2% in the first quarter due to the coronavirus panic. The growth rate is sharply slower than the 2.1% increase seen in the fourth quarter and 2.3% in 2019.The International Monetary Fund (IMF) recently said that the virus will likely dent global growth by 0.1%
As a result, the S&P 500 and the Dow Jones Industrial Average suffered their biggest single-day percentage losses in two years on Feb 24. On Feb 24, shares of big tech stocks (Apple, Facebook, Amazon, Microsoft and Google) saw losses of more than $238 billion. No wonder, this wreaked havoc on the tech-heavy Nasdaq.
The benchmark S&P 500, which makes up more than 44% of the market capitalization of all global equities, lost $927 billion of its value on Feb 24 alone, according to S&P Dow Jones Indices senior analyst Howard Silverblatt, as quoted on Reuters. Global stock markets shed $1.73 trillion on the day.
Is the Selloff Transitory?
Per an article published on CNBC, stocks tend to bounce back immediately after steep selloffs, if we take a look at the past data. “Going back to 2009, the S&P 500 has returned 1% on average the next day the benchmark shed more than 2% on Mondays, according to Bespoke Investment Group,” per the article.
At the time of writing, U.S. stock futures were trading in the green with the S&P 500, the Dow Jones and the Nasdaq logging 0.95%, 0.88% and 1.37% gains. And it makes sense. If you are a long-term investor, events like the coronavirus eruption may not be paid much heed as the fundamentals of the global economy are unaltered.
As markets skidded on the virus scare, billionaire investor Warren Buffett warned investors not to “buy or sell” on the headlines.“The real question is: ‘Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?” said Buffett on CNBC, as quoted on MarketWatch.
Why You Should Have Faith in Wall Street
The U.S. economy is on a strong footing. Though the virus jitters might dent growth for a quarter or two, the economy should rebound in the medium term. Tech stocks will probably hold the key, with widespread adoption of emerging technologies.
Goldman appears bullish on tech stocks. It said that though investor capital has been most concentrated on FAAMG (Facebook, Amazon, Apple, Microsoft and Google-parent Alphabet) in 20 years, events like the dot-com bubble burst won’t happen again. The top five tech stocks of the S&P 500 index are way cheaper now than the top ones of the dot-com bubble time.
Meanwhile, low rates globally, reduced tax rates in the United States, cheap oil and an upbeat stock market (which can result in wealth effect) should benefit consumer stocks as well. There are some other corners like real estate and healthcare which shouldn’t be ignored. While real estate dynamics are changing and turning more tech-sensitive, demand for healthcare will never fade owing to an expanding global population (read: What's Behind the Recent Rally in Real Estate ETFs?).
Against this backdrop, investors who want buy or hold ETFs with a long-term view can bet on the following.
ETFs to Buy
SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM - Free Report)
The fund measures the performance of the broad market segment of the U.S. equity market. Information technology (23.5%), Health Care (13.6%), Financials (12.9%) and Consumer Discretionary (10.3%) are the top sectors. This Zacks Rank #1 (Strong Buy) ETF charges only 3 bps in fees.
First Trust ISE Cloud Computing Index Fund (SKYY - Free Report)
Cloud is a hot area in the tech space. The fund has a Zacks Rank #2 (Buy) and charges 60 bps in fees (read: 3 ETFs to Profit from Explosive Growth of Cloud Computing).
Health Care Select Sector SPDR ETF (XLV - Free Report)
The Zacks Rank #2 fund includes companies from the pharmaceuticals, health care providers & services, health care equipment & supplies, biotechnology, life sciences tools & services, and health care technology industries. It charges 13 bps in fees (read: Looking to Buy the Dip? Play These Top-Ranked ETFs).
Vanguard Dividend Appreciation ETF (VIG - Free Report)
The Zacks Rank #2 fund consists of common stocks of companies that have set a record of raising dividends consistently. These funds generally offer quality exposure (read: Play These Dividend Growth ETFs to Combat Coronavirus).
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