Wall Street has been on a wild swing this year, triggered by concerns over sky-high inflation, rising interest rates and a dull economic outlook. The sell-off accelerated recently, with the S&P 500 logging in the longest weekly losing streak since 2011 and the Dow Jones registering the first seven-week losing streak since 2001. The tech-heavy Nasdaq Composite saw the sixth consecutive weekly decline. Notably, the S&P 500 saw the worst start to a year since 1939 and is on the brink of bear territory.
The beaten-down prices offer a solid buying opportunity for investors. We have highlighted five ETFs from different sectors that have declined more than 25% this year but have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These products, namely, WisdomTree Cloud Computing Fund WCLD, SPDR S&P Biotech ETF XBI, First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN, iShares U.S. Home Construction ETF ITB and Consumer Discretionary Select Sector SPDR Fund XLY are poised to outperform when the market resumes its uptrend.
Market Trends
The Federal Reserve has started raising interest rates more aggressively to fight inflation that will hit consumers and businesses. Fed Chair Jerome Powell has raised interest rates by 50 bps in the latest FOMC meeting. This marks the biggest interest-rate hike since 2000. Inflation jumped 8.3% year over year in April. Though it is down from an 8.5% year-over-year increase in March, it still represents the second-highest inflation in four decades and an ongoing burden for families, especially lower-income Americans.
COVID-19 variant concerns and the resultant lockdown measures in China have sparked worries over global economic expansion that will continue to weigh on investors’ sentiment. Notably, the U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter. Consumer sentiment hit the lowest level since 2011 in May, according to the latest reading of the University of Michigan Sentiment index. Manufacturing activity grew at its slowest pace in more than one and a half years in April (read: U.S. Economy Shrinks in Q1: ETFs to Win/Lose).
Further, a war in Ukraine worsened disruptions in the flow of goods across borders, resulting in skyrocketing food and energy prices, and threatening corporate profits. Corporate results have turned out weaker than expected for the first quarter.
However, Powell’s latest remarks that “the bigger rate hikes would be off the table for now even after the hot inflation readings” is expected to rekindle investors’ interest in risker assets once again. After a massive decline, U.S. stocks have become extremely cheap at current valuations. In fact, the meltdown has wiped out more than $7 trillion in market value from the blue-chip stocks in the S&P 500.
ETFs to Buy
WisdomTree Cloud Computing Fund (WCLD) – Down 41.3%
Demand for cloud computing services surged during the pandemic and is expected to grow further, as work, school, and social activities moved increasingly to digital experiences. WisdomTree Cloud Computing Fund offers exposure to emerging and fast-growing U.S.-listed companies (including ADRs) that are primarily focused on cloud software and services, and follow the BVP Nasdaq Emerging Cloud Index. It holds 76 stocks in its basket and charges investors 45 bps in fees per year.
WisdomTree Cloud Computing Fund has amassed $567 million in its asset base and trades in an average daily volume of 472,000 shares. It has a Zacks ETF Rank #2.
SPDR S&P Biotech ETF (XBI) – Down 38.7%
Biotech might be a good buying option for the long-term investors given the encouraging industry trends, including new drug nods, an accelerated pace of innovation, promising drug launches, the growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the rising middle class, an insatiable demand for new drugs and ever-increasing spending on healthcare. SPDR S&P Biotech ETF offers equal-weight exposure across 157 biotechnology stocks. It follows the S&P Biotechnology Select Industry Index, charging investors 35 bps in annual fees.
SPDR S&P Biotech ETF has AUM of $5.1 billion and trades in an average daily volume of 13.6 million shares. XBI has a Zacks ETF Rank #2.
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) – Down 31.3%
Countries across the globe are scaling their renewable energy investments. The United States has been at the forefront of making the climate clean with President Joe Biden’s pledge to go greener. First Trust NASDAQ Clean Edge Green Energy Index Fund offers exposure to the companies engaged in manufacturing, development, distribution and installation of emerging clean-energy technologies, including solar photovoltaics, wind power, advanced batteries, fuel cells, and electric vehicles. It tracks the Nasdaq Clean Edge Green Energy Index and holds 65 stocks in its basket.
First Trust NASDAQ Clean Edge Green Energy Index Fund manages assets worth $1.7 billion and charges 58 bps in fees per year. The product trades in an average daily volume of…
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