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5 Sector ETFs Just Got Upgraded to Buy

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Wall Street has remained steady in recent weeks mainly due to the gradual reopening of economies globally (including 50 U.S. states) from coronavirus-led lockdowns and rising hopes for vaccines. A civil unrest in America has failed to sour the market momentum as recent manufacturing, consumer confidence and some housing data came in less scary and indicate chances of a speedy recovery.

Meanwhile, efforts for drug and vaccine developments for novel coronavirus are ramping up. Global economies and corporates are leaving no stone unturned to register a fast rebound from the COVID-19 slump.

Against this backdrop, Zacks recently issued quarterly rank updates for ETFs. Below we highlight sector ETFs that were upgraded to a Zacks ETF Rank #2 (Buy) from 3 (Hold) in recent revisions.

Financials – SPDR SP Bank ETF (KBE - Free Report) ; Vanguard Financials ETF (VFH - Free Report)

Banks were hit hard at the peak of the COVID-19 pandemic due to the likelihood of higher default rates on loans as well as rock-bottom interest rates.  However, with easing social distancing restrictions and the return of risk-on trade sentiments, long-term bond yields should jump higher in the near term. This should benefit financial stocks that perform well in a rising rate environment. Moreover, the Fed and the government have been taking care of the liquidity position of corporates and households by launching unprecedented stimulus.

Pharmaceuticals – SPDR S&P Pharmaceuticals (XPH - Free Report) ; Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report)

This is understandably a winning sector amid this medical emergency. Efforts in formulating a coronavirus vaccine are ramping up. The World Health Organization has recognized some 10 prime candidates for these potential vaccines as these have entered clinical trials. Plus, 114 candidate vaccines are in preclinical evaluation stage (read: Stocks & ETFs Beneficiaries of Coronavirus Vaccine Ramp-Up). 

Per WHO, these prime candidates for potential vaccine include mRNA-1273 by Moderna Inc. (MRNA), a candidate from Oxford University, RNA vaccine candidate from the alliance between U.S.-based Pfizer and German company BioNtech, and a DNA-based vaccine from INOVIO Pharmaceuticals . Novavax (NVAX) said lately that it started human testing of its coronavirus vaccine candidate, and expects preliminary results for the trial in July.

Industrials – iShares U.S. Industrials ETF (IYJ - Free Report)

U.S. manufacturing activity recovered from an 11-year low in May, in a sign that the worst of the COVID-19 economic crisis is probably over. Some of the industries were considered part of the critical workforce amid lockdown (read: U.S. Manufacturing Points to a Recovery: 5 Winning ETF Areas).

Retail – Vaneck Vectors Retail ETF (RTH - Free Report)

The consumer sector looks to be on the mend. Visa’s total U.S. payments volume fell at a much slower clip in May from the previous month. This gives a clear indication of recovering consumer spending as lockdowns are lifted. U.S. payments volume in May fell to 5% compared with an 18% plunge in April. U.S. consumer confidence also gained in May. Along with some analysts, we too believe that the U.S. government’s CARES relief checks and extensive price discounting boosted consumers’ attitude toward buying.

Communication – iShares U.S. Telecommunications ETF (IYZ - Free Report) , Vanguard Communication Services ETF (VOX - Free Report)

The COVID-19 outbreak brightened the appeal for the work-and-learn-from-home culture. With exponential growth in video and other bandwidth-intensive applications owing to the mass adoption of smartphones and increased deployment of 5G technology, the communication industry is to set to rule irrespective of the pandemic.

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