These Sector ETFs Could Lead the Market Higher
With U.S. stocks flirting with all-time highs, tactical investors should be evaluating the sectors and the relevant exchange traded funds that could carry broader benchmarks, such as the S&P 500, over the top. Some market observers believe that includes the financial services and healthcare groups, the second- and third-largest sector weights, respectively, in the S&P 500.
In recent weeks, investors have been flocking to financial services ETFs, including the Financial Select Sector SPDR (NYSEArca: XLF ), in anticipation of the Federal Reserve boosting interest rates this month.
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Financial services exchange traded funds still hang in the Federal Reserve’s balance, particularly after the May jobs report disappointed. That could mean the Fed again passes on raising interest rates later this month, which would likely weigh on financial services ETFs that have rallying in anticipation of higher rates.
Thanks in large part to struggles by biotechnology stocks, healthcare exchange traded funds of several different varieties have encountered stumbling blocks.
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The silver lining is that healthcare has been one of the most beloved sectors during the current bull market, meaning many market observers see the group’s recent pullback as an opportunity to add to or initiate positions in healthcare stocks or ETFs such as the Health Care Select Sector SPDR (XLV) .
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“Erin Gibbs, equity chief investment officer at S&P Global Market Intelligence, is focused on bigger sectors as she believes smaller sectors hold too little weight to push the market higher. While info tech is by far the largest sector, making up 20 percent of the S&P 500, Gibbs believes the outlook is better for the second and third largest, financials and health care, respectively,” reports CNBC.
Investors seeking high-quality exposure to the health care industry have a number of options available, including XLV, the iShares U.S. Healthcare ETF (IYH) and Vanguard Health Care ETF (VHT) .
The financial sector received a boost from Presidential candidate Donald Trump after he proposed dismantling nearly all of Dodd-Frank, the package of financial reforms placed after the global financial crisis.
“More specifically, Gibbs believes that health care will become significant. Not only is that sector the third largest in the broader market, but according to Gibbs, health care’s valuations put it in a great place for expansion,” according to CNBC.
Health Care Select Sector SPDR
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
