The stronger-than-expected jobs report on Friday brought the
'tapering' talk back in focus. Many economists now believe that
the Fed may start scaling back its easing program as early as in
September this year. As a result, the 10 year benchmark yield
soared to 2.73% last week--its highest level since August
As the market prepares for the post-QE world, companies'
fundamentals--earnings in particular--will return to the
forefront. The second quarter earnings season has now kicked-in,
with Alcoa reporting yesterday. Overall, this earnings season is
expected to be rather lackluster. Per Zacks Research Director
Sheraz Mian, earnings for S&P 500 companies are expected to
increase only 0.4% from the same period last year
At the same time, some sectors are expected to report better
earnings than others. (Read Zacks Earnings Trends:
Will Earnings Growth Bottom in Q2
) Now may be a great time to consider investing in some of the
sectors that are expected to report positive earnings growth in
the coming days. Below we have analyzed three Zacks top ranked
to play these sectors.
Finance-Excellent Earnings Growth with an Improved
Per Zacks estimates, Finance will reassume its dominant
earnings position in the index which was taken over by the Tech
sector after the 2008 crash. Total earnings for finance sector
are expected to be up +18.6% and estimates for the group continue
to rise. . (Read:
Buy these ETFs for improved insurance sector
Finance sector (banks and insurers in particular) is expected
to be one of the biggest beneficiaries of a steepening yield
curve. Another reason to be bullish on the financial sector is
its potential for increasing dividends and
buybacks. Financials have accounted for the largest increase
in dividends in the last three years. This year so far has
already been excellent in terms of dividends/buybacks increases
by finance companies as many of them got Fed approval after
passing stress tests.
S&P Financial Select Sector SPDR Fund (
The largest and the cheapest fund within the financials
space--XLF tracks S&P Financial Select Sector Index. Launched
in December 1998, this fund has attracted more than $14.9 billion
in assets. (Read: 3
All American ETFs to buy now
The product holds 82 securities in its basket, with top
allocations to Berkshire Hathaway, JP Morgan and Wells Fargo. It
charges an expense ratio of just 18 basis points and has a
dividend yield of 1.56% currently.
XLF is currently a Zacks Rank #2 (Buy) ETF.
Consumer Discretionary and Retail Maintain Positive
Consumer cyclical sectors are among a few others sectors that
are expected to maintain a positive growth during the second
quarter. And this comes as no surprise as consumer
confidence remains near multi-year high and consumer spending has
remained resilient despite sluggish economic growth.
Consumer Discretionary sector is expected to report 8.9%
earnings growth and Retail is expected to report 5.9% earnings
growth for the second quarter.
Consumer discretionary and retail stocks have been doing
pretty well in recent months as the labor market showed clear
signs of healing. Further, rising housing market and surging
stock market added to the "wealth effect", resulted in rising
consumer confidence. Lower gasoline prices have also been helping
Improvement in the economic outlook and low inflation will
continue to benefit retail and consumer discretionary stocks.
Research also shows that these cyclical or economically sensitive
sectors have benefitted in the rising rate scenario.
SPDR S&P Retail ETF (
XRT was launched in June 2006 and has amassed more than $1.2
billion in assets so far. The fund holds 97 companies in its
basket and comes with a low cost of 35 basis points a year.
Its equal weight focus also ensures that the risk is pretty
spread out. Apparel Retail (29%), Specialty Stores (15%) and
Automotive Retail are the top three sectors that the fund is
XRT is currently a Zacks Rank #1 (Strong Buy) ETF.
Consumer Discretionary Select Sector SPDR Fund (
Launched in December 1998, XLY has amassed $ 6.2 billion is
assets so far, which are currently invested in 85 securities. In
terms of sectors, Media (30%), Specialty Retail (19%) and Hotels
Restaurants & Leisure (15%) occupy the top three spots.
With an expense ratio of just 18 basis points, this is one of
the low-cost choices in the space.
XLY is currently a Zacks Rank #1 (Strong Buy) ETF.
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SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-CONS DISCR (XLY): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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