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4 ETFs to Play Key Events in Q4

Strong underlying demand and increased public-sector activity help Martin Marietta (MLM) to report higher third-quarter numbers. However, adverse weather conditions pose a risk.

The journey for Wall Street so far this year has been anything but comfortable. The path has been shrouded by trade war tensions between the United States and several other countries mainly China, rising rate worries and slowdown in developed economies. Still, markets ushered in gains on an uptick in global growth, oil price jump and Trump trade in the United States.

All these mixed forces have helped SPY gain over 7.8%, DIA add about 7.5% and QQQ move higher by about 16.7% so far this year (as of Oct 2, 2018). With the fourth quarter likely to see the events stated below, investors can expect the same mixed show.


Key Events to Take Place in Q4

Holiday Season: The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.

Holiday retail sales this year — barring automobiles, gasoline and restaurants — are likely to be between $717 billion to $721 billion, according to the National Retail Federation, an industry trade group. Sales will see a growth rate of 4.3% to 4.8%, which will be lower than last year’s rate of 5.3% but higher than the five-year average of 3.9%.

However, Deloitte expects sales to increase between 5 and 5.6% from a year ago. E-commerce sales are expected to surge 22% through the holidays, up from 16.6% online retail sales growth in the year-ago period.

Fed Hike: The Fed is likely to enact its final rate hike in December and maintained an upbeat outlook on the U.S. economy in its September meeting. Investors should note that the Fed put the third-rate hike of the year into effect in its September meeting.

The Fed raised the benchmark interest rates by a modest 25 bps to 2.00-2.25% (the same as that in April 2008), reflecting the growth momentum of the U.S. economy and the well-being of the labor market. It marked the eighth-rate hike since the first lift-off in December 2015 (read: Fed Hikes Rates as Expected: ETF Areas That Gained).

Mid-Term Election: The mid-term presidential election is slated on Nov 6. As per realclearpolitics, Democrats have a 48.7% chance of winning as of October 2, 2018 while Republicans have 41% chances. Whatever the case, mid-term election and rate hike worries are likely to keep the market edgy in Q4.

4 ETFs to Buy

In this light, we highlight a few ETFs that could be great picks for the fourth quarter.


Investors should also note that the consumer discretionary sector is cyclical in nature, and normally performs better in a trending economy, irrespective of the rate hike fear. The cyclicality of the sector and an expected surge in sales makes XRT our choice.

iShares PHLX Semiconductor SOXX

The technology sector has been in a great shape lately thanks to the return of risk-on sentiments as trade tensions subdued to a large extent on the United States-Mexico-Canada deal. Within the broader tech space, semiconductor, the value-centric traditional tech area, is likely to have an upper hand thanks to a still-edgy investing backdrop.

Higher demand from emerging technology applications despite still-subdued PC shipments are tailwinds to the space. Moreover, analysts hope to see a booming holiday quarter for Apple watch. Apple’s suppliers, meaning several semiconductors companies, should also benefit from this trend.

iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI

Since the Fed has higher chances of acting in December, a rising interest rate scenario would be highly profitable for the financial sector. We pick this broker-dealers ETF, which will likely benefit from rising rates and a recovering economy (read: Here's Why Should You Buy Financial ETFs).

iShares Core Dividend Growth ETF (DGRO)

Since both the mid-term election and possibility of rising rates have chances of causing considerable volatility in the market, investors can pick a safe ETF like DGRO. The fund is composed of U.S. equities with a history of consistently growing dividends (read: 5 Dividend Growth ETFs to Fight Trade & Inflation Fears).

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SPDR-SP RET ETF (XRT): ETF Research Reports
ISHARS-US BR-D (IAI): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
ISHRS-CORE DG (DGRO): ETF Research Reports
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