After the February chills, global markets sprung back to life at the start of March. As the global markets have been dealing with the coronavirus and Wall Street has entered into correction mode in the final days of February, bets over a “
coordinated policy response by central banks”– have increased.
At the current level, according to CME FedWatch tool, there is a 100% probability of monetary policy easing of 50 bps in the Fed’s mid-March meeting. Several other central banks like Japan may pursue policy easing as well. Australia has already cut rates. The People's Bank of China (PBOC)
has also told banks to “help firms struggling with repayments by extending loans and not penalizing them if they are late with payments”(read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play). Global markets lost more than $5 trillion last week as stocks saw their steepest slump in more than a decade. Overall, the S&P 500-based SPY, the Dow Jones-based DIA and the Nasdaq 100-based ( QQQ Quick Quote QQQ - Free Report) lost about 11.2%, 12.1% and 10.6%, respectively, in the week. However, hopes for central bank easing encouraged “buy-the-dip” investing at the start of March (read: Top and Flop ETFs Last Week).
The S&P 500, the Dow Jones and the Nasdaq gained a respective 4.6%, 5.1% and 4.5% on Mar 2. In any case, the month of March has mostly been wonderful for the stock market. In fact, a consensus carried out from 1950 to 2018 shows that March ended up offering positive stock returns in 44 years and negative returns in 26, per
moneychimp.com, with an average positive return of 1.06%. The month’s return is the fourth highest.
Against this backdrop, we highlight a few ETFs that could prove profitable in the third month of 2020. The ETFs have a Zacks Rank #1 (Strong Buy) or 2 (Buy) (read:
Top ETF Stories of Virus-Infected February). Financial Select Sector SPDR ETF ( XLF Quick Quote XLF - Free Report) – Rank #2
We would like to note that financial stocks have been pretty beaten-down in the past year due to the flattening of the yield curve. Some parts of the yield curve have inverted now. Notably, as of Mar 2, the spread between 10-year and one-month yields was a negative 31 bps in fees. Since banks borrow money at short-term rates and lend capital at long-term rates, steepening of the yield curve bodes well for bank ETFs.
If the Fed cuts short-term rates, we may end up seeing steepening of the yield curve in the medium term. This could prove beneficial for financial stocks. Moreover, investors should note that bank stocks have cheaper valuation at the current level and offer a good entry point. Big banks are also known for shareholders’ value maximization (read:
Why Bank ETFs May Soar in 2020). Invesco S&P 500 Pure Growth ETF ( RPG Quick Quote RPG - Free Report) – Rank #2
More central bank easing means more growth in the global economy, which should benefit large-cap U.S. companies with a global footprint. After all, the latest U.S. economic data points have come in healthy. The U.S. economy is one of the best-positioned in the developed market world. A dovish Fed is another tailwind (read:
Last Week Saw 1st ETF Outflow in 2020: Winners & Losers). iShares PHLX Semiconductor ETF ( SOXX Quick Quote SOXX - Free Report) – Rank #1
The U.S. semiconductor industry is heavily tied to China. So, any disruption in China wreaks havoc on the industry. Though the country was the epicentre of coronavirus, the number of new cases reported each day has declined over the past few weeks. This makes semiconductor stocks lucrative picks, especially when these are now available at a bargain price (read:
Buy These ETFs as Nvidia Returns to Revenue Growth). iShares Nasdaq Biotechnology ETF ( IBB Quick Quote IBB - Free Report) – Rank #2
Amid the coronavirus scare, biotech stocks are appealing bets as many firms are engaged in developing the vaccine for it. Now central bank easing would put this high-growth sector ETF in a sweet spot (read:
Wanna Be a Value Investor? Follow Buffett & Play 2 ETF Areas). Vanguard Consumer Discretionary ETF ( VCR Quick Quote VCR - Free Report) – Rank #2
Low rates, cheap oil and a healthy stock market should work wonders for consumer stocks. The fund’s top two stocks are
Amazon AMZN and Home Depot HD. Both these stocks are not that China-dependent in any case. Also, the fund has the soaring Tesla TSLA in its top-10 list (read: Consumer Discretionary ETFs That Hit New All-Time Highs). Want key ETF info delivered straight to your inbox?
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