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Is the 'Worst Behind Us'? ETFs to Buy

Sanghamitra Saha
·5 min read

Wall Street has been heaving a sign of relief this week on cues of slowdown in global coronavirus cases. Data from Johns Hopkins shows that the last five-day moving average of new confirmed cases in the United States has declined. This is also true for other heavily-affected countries like Italy, Spain and United Kingdom. New York, the coronavirus hot spot in the United States, is also showing signs of a slowdown in cases.

This piece of news triggered a relief rally in Wall Street on Apr 6 that has been supported by massive global stimulus. An infinite QE by the Fed and about $2-triliion fiscal measures have been boosting Wall Street investors’ sentiments. The S&P 500, the Dow Jones and the Nasdaq gained about 7% at the start of the week and lost little on Apr 7, probably for profit-booking.

Has Wall Street Bottomed?

Market pundits have diverse opinions on this. However, Morgan Stanley’s chief U.S. equity strategist Mike Wilson believes that for stocks and investors, the worst is behind us. Valuations are most attractive since 2011, per Wilson. He added that the current stock market level is a good entry point for a six to 12-month horizon, as quoted on MarketWatch.

Lest we forget, the economy was on a strong footing before the virus attack. Americans’ savings were just 3.6% of their income at the end of 2007, while households now save at an 8% rate. Unemployment rate was at a 50-year low level.

The job market might be in a bad shape today owing to the outbreak but we are likely to see a V-shaped recovery (which is a fast one) and in worst-case, U-shaped (marks a slow recovery). In short, this is not a 2008-like scenario where job losses were due to economic weakness. This time it’s simply because operations are shut down to contain the spread of the virus. One should note that the economy still has substantial pent-up demand.

Against this backdrop, we highlight a few sector ETFs that gained significantly this week after an excruciating past month. This gives hints on investors’ behavior toward the market in the post-virus economy. A painful past month calls for a cheaper valuation.

ETFs to Buy

Homebuilding iShares U.S. Home Construction ETF ITB

The Zacks Rank #2 (Buy) fund ITB has gained 15.9% so far this week, while it has declined 32.1% in the past month. Lower-than-expected decline in mortgage rates, likelihood of labor shortage, reduced wealth effect and the absence of the Spring selling season wreaked havoc on the sector in the past month.

If coronavirus cases drop further, the Fed and government stimulus keep offering support and stock markets bounce back, housing ETFs are sure to make a comeback (read: What Fed Rate Cut? 5 Reasons Why Housing ETFs Are in Trouble).

SPDR S&P Retail ETF XRT

The Zacks Rank #2 fund has added 14% this week. The broader retail sector has been a victim of lockdowns and temporary store closures. However, the fund XRT’s top 10-holdings segment is loaded with some stocks that are doing well in the wake of the pandemic.

These companies are providers of Internet-based postage services like Stamps.com Inc., online retail giant Amazon; grocery destinations like Grocery Outlet Holding Corp. and Walmart Inc.; low-priced retailers like Dollar General; online pet retailer Chewy and pet pharmacy PetMed Express.

These stocks are emerging as pandemic-proof stocks and will be equally important even after the crisis. Cheap oil is another plus factor for the sector (read: Coronavirus Hits Feb Retail Sales: Winning & Losing ETFs).

iShares PHLX Semiconductor ETF SOXX

The Zacks Rank #1 (Strong Buy) fundhasadded about 9.8% this week.The rising work-and-learn-from-home trend boosted the need for PCs, laptops and other kind of computer peripherals. Demand is on the rise at both commercial and retail levels. Solid demand for cloud will also drive the need for chips. No wonder, the semiconductor space is a hot bet.

VanEck Vectors Gold Miners ETF GDX

Though stocks have surged this week, the rally does not have legs as the global coronavirus crisis will take some time to fade. So, safe-haven demand for gold will remain strong, which in turn should boost gold mining activities. Several gold mines on the global level did not face lockdowns. Also, mining companies use oil as an input, which has seen a huge price slump of late. GDX has added 4.6% so far this week (read: ETFs at Risk as Oil Sees Worst Quarter on Record).

ETFMG Prime Mobile Payments ETF IPAY

The fund gained 11.2% so far this week. Electronics payments are seeing a rise in demand amid the COVID-19 outbreak as it involves contact-less transactions. IPAY has lost 18.2% in the past month (read: 5 ETFs From Top Industries That Won't Let You Down in 2020).

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SPDR S&P Retail ETF (XRT): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
 
ETFMG Prime Mobile Payments ETF (IPAY): ETF Research Reports
 
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Zacks Investment Research
 
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