3 Cyclical ETFs To Buy In A Rebounding U.S. Economy [Consumer Discretionary SPDR (ETF)]

Economy recessionSigns of recovery in the U.S. economy, though not brisk, are surely more than what we saw early this year. Spring sprung more jobs, better housing data, strong manufacturing numbers and confidence in the country among its citizens. A steady QE wrap up also gave hints of economic well being. An influence on the stock market was only natural.

Overseas too, things started shaping up. Though Iraq poses a new tension and Russia concerns show no signs of cooling off, the second largest economy in the world, China, has shown stability, European Central Bank cut the bank deposit rate to the negative territory and Japanese economy picked up, giving much-needed warmth to the frozen U.S. economy.

Most sectors benefited from the stock market surge, with a few of the more cyclical corners making the most of this run-up. These industries often sag in a slumping economy, but are the biggest winners when rays of hope are seen.

Even though broad corporate earnings in Q1 caused some concerns thanks to feeble growth and persistent downbeat guidance, three cyclical sectors discussed below can deliver better returns this year and in the next.

Zacks Sectors 2Q14E 3Q14E 2014E 2015E
Consumer Discretionary 3.4% 5.6% 13.6% 13.8%
Construction 8.3% 13.6% 10.6% 25.8%
Industrial Products 0.5% 3.5% 7.9% 12.4%

Many aggressive stocks were shattered in early 2014 due to high-beta pain and risk-off trade sentiments prevailing in the market increasing the appeal for defensive plays. As a result, investors can put their money into this once beaten-down corner of the market pinning hopes on favorable fundamentals and reasonable valuations.

Below, we have highlighted a few possible choices in this space, any of which could be interesting for those seeking a cyclical play at this time:

PowerShares Dynamic Building & Construction (NYSEARCA:PKB)

Recent data on construction spending and other metrics such as housing starts were favorable. Service providers, including construction companies and retailers, grew in May at their fastest speed in nine months. A low interest rate environment also played its role in lifting the sector (read: Has Spring Finally Sprung for Housing ETFs?).

This trend can best be tracked by PKB. This 30-stock ETF has its assets invested across all classes of the market spectrum. Engineering and construction stocks comprise more than one-fourth of the fund, followed by construction material companies which account for 11%. A look at the style pattern reveals that the fund has a preference for value stocks.

PKB manages an asset base of $126.1 million and has an expense ratio of 63 basis points. The fund carries a Zacks ETF Rank #3 (Hold) with a High level of risk. PKB was up 4.12% in the last one month (as of June 10, 2014).

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