The coronavirus scare sent the broader market into a tailspin, withthe S&P 500 losing 18.4% in the past month (as of Mar 11, 2020), the Dow Jones losing 19.5% and the Nasdaq Composite retreating 18.4%.
The crisis aggravated on Mar 11 after WHO declared the coronavirus outbreak a global pandemic. To add to the woes, President Trump enacted a month-long travel ban from Europe (except
the United Kingdom) to contain the spread of the virus, dealing a blow to global trade. Also, there was no mention of payroll tax cuts that markets were hoping for.
Many market watchers signaled an upcoming recession. Some found similarities between the latest market fallout and the 2008 crisis. But is it true? Probably not. In 2008, the crisis was demand shock-driven and core weakness in the economy. This time, the problem is centered on supply chain and economic picture was almost steady just before the virus attacked.
VIDEO Will Markets Keep Skidding?
JPMorgan Chase believes no. Its chief U.S. equity strategist said in a note to clients that “
the market has gone ahead and priced in too severe of an adverse scenario, assuming we get timely and strong counter-policy response and a COVID-19 outbreak that peaks in the coming weeks.”
A recession is not inevitable,” says chief economist of PNC Financial Services Group. Even if we have a recession soon, the scale of it would be less severe than the Great Recession, per the economist. “It’s closer to a natural disaster,” per the director of U.S. Macro Investors Services at Oxford Economics.
JPMorgan said a market sell-off of this scale normally indicates a
65% to 75% chanceof recession in the coming one year. But the economy is now on a strong footing (excluding the impact of virus). Americans’ savings were just 3.6% of their income at the end of 2007, while households now save at an 8% rate. Unemployment rate is at a 50-year low level.
Then there is hope that the summer months may slow down the spread of coronavirus. So, though Great Recession in 2008 lasted 18 months, the latest virus-driven economic slump may stretch for
six months, per chief economist of Grant Thornton. Pent-Up Demand to Boost Markets Once Virus Dies?
With the Fed and the BoE announcing emergency rate cuts, Australia and Hong Kong adopting policy easing and the People's Bank of China (PBOC) is
asking banks to “help firms struggling with repayments by extending loans and not penalizing them if they are late with payments,” the extent of coordinated monetary policy easing is understandable (read: Emergency Fed Cut Less Effective: ETFs That Should Survive).
Then there is $50 billion-aid from IMF. President Trump signed an
$8.3-billion spending package. The Trump administration is also mulling over extending the Apr 15 tax filing deadline to help support American households and businesses, per CNN. All these fiscal and monetary support should improve the risk/reward of investing, per JPMorgan (read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play).
So, we might see a market rally, thanks to solid pent-up demand. JPMorgan reaffirmed its year-end S&P 500 price target at 3,400, suggesting a rise of 24% from the close on Mar 11.
ETFs to Pick
Against this backdrop, we highlight a few beaten-down ETFs that offer forward yield greater than 1% (present benchmark treasury yield is 0.82%), have a Zacks Rank #2 (Buy) and Beta in the range of 0.89x to 0.94x.
Health Care Select Sector SPDR ETF ( XLV Quick Quote XLV - Free Report) – Down 12.1% in the past month Beta: 0.92x Yield: 2.32% Vanguard Dividend Appreciation ETF (– Down 15.7% VIG Quick Quote VIG - Free Report) Beta: 0.89x Yield: 1.86% Principal U.S. Mega-Cap Multi-Factor Index ETF ( USMC Quick Quote USMC - Free Report) – Down 16.3% Beta: 0.89x Yield: 2.19% iShares Russell 1000 Pure U.S. Revenue ETF – Down 18.2% Beta: 0.87x Yield: 2.64% iShares Core Dividend Growth ETF (– Down 18.8% DGRO Quick Quote DGRO - Free Report) Beta: 0.94x Yield: 2.45% Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>