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After bouts of volatility, Wall Street regained momentum in the past few sessions on optimism over trade talks between the United States and China and signs of stabilization in Turkey. The two countries are set to hold talks this week and China is expressing willingness to come to some terms with the United States to resolve the trade issue, as per some analysts.
A pair of billion-dollar deals - PepsiCo's (NASDAQ: PEP ) purchase of SodaStream International (NASDAQ: SODA ) for $3.2 billion and Tyson Foods ' (NYSE: TSN ) purchase of Keystone Foods for $2.16 billion - also instilled confidence in economic expansion.
Per the latest Bank of America Merrill Lynch survey, professional investors have the biggest portfolio weighting to U.S. stocks in their portfolio since early 2015. Allocation to U.S. stocks jumped 10 percentage points this month to a net 19% overweight, the highest since January 2015.
Surging corporate profits and an improving economy as indicated by bouts of upbeat data are acting as major catalyst for the stock market. Notably, the American economy has been on a solid growth path with GDP growth expanding 4.1% annually in the second quarter, representing the fastest pace of growth in nearly four years.
The historic tax cuts, infrastructure investment, higher government spending, deregulation, rising wages and record unemployment are fueling huge growth. Per Trump, "the United States is on track to hit the highest annual growth rate in over 13 years".
Additionally, an impressive labor market, increase in wages, rise in consumer confidence and higher consumer spending are boosting economic activities. A rising rate scenario also signals a strengthening economy, which will spur further growth in the stock market.
While there are winners in many corners of the stock market, investors should tap the sectors that are expected to continue moving higher in the weeks ahead. Below, we have highlighted four sector ETFs that hit new highs in the recent trading sessions and have a Zacks Rank of #1(Strong Buy) or #2 (Buy).
SPDR S&P Retail ETF (XRT)
52-Week Price: $51.97
The SPDR S&P Retail ETF (NYSEARCA: XRT ) offers concentrated exposure to the retail sector and tracks the S&P Retail Select Industry Index, holding 89 securities in its basket, with none accounting for more than 1.9% of assets. The fund has amassed $624.3 million in its asset base and charges 35 bps in annual fees. It sports a Zacks ETF Rank #1 with a Medium risk outlook.
The retail sector is getting a boost on strong earnings and back-to-school shopping spree. Additionally, the National Retail Federation last week raised its retail sales forecast to 4.5% from 3.8-4.4% for this year, citing higher wages, gains in disposable income, a strong job market and record-high household net worth.
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD)
52-Week Price: $70.63
The Invesco S&P SmallCap Consumer Discretionary ETF (NYSEARCA: PSCD ) targets the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 102 securities in its basket with none accounting for more than 3% of the assets.
The product has attracted $90.8 million in AUM and charges 29 bps in annual fees. It has a Zacks Rank #2 with a High risk outlook.
The consumer discretionary sector looks solid at current levels given lofty savings and increasing take-home pay due to lower taxes that has increased the consumer power to spend more. This is turn led to higher demand for consumer discretionary products.
iShares U.S. Aerospace & Defense ETF (ITA)
52-Week Price: $207.47
The iShares U.S. Aerospace & Defense ETF (BATS: ITA ) offers exposure to U.S. companies that manufacture commercial and military aircraft, and other defense equipment. It follows the Dow Jones U.S. Select Aerospace & Defense Index, holding 38 stocks in its basket with double-digit exposure to Boeing (NYSE: BA ).
The ETF has amassed $5.7 billion in AUM and charges 43 bps in fees a year. It has a Zacks Rank #2 with a Medium risk outlook.
The aerospace & defense sector is riding higher on increased NATO defense spending, robust demand for passenger jets as well as earnings optimism. Trump last week signed a $717-billion 2019 defense spending bill that has added to the strength in the space.
iShares U.S. Healthcare ETF (IYH)
52-Week Price: $195.20
The iShares U.S. Healthcare ETF (NYSEARCA: IYH ) provides exposure to broad healthcare space by tracking the Dow Jones U.S. Health Care Index. Holding 120 stocks, it is heavily skewed toward Johnson & Johnson JNJ at 9.5% while other firms account no more than 6.7% share.
The product has amassed nearly $2.1 billion in its asset base, while charges 44 bps in annual fees. It has a Zacks Rank #2 with a Medium risk outlook.
The healthcare space has been gaining on its non-cyclical nature, which provides a defensive tilt to the portfolio in a turbulent market. Additionally, rising M&A, faster drug approval and positive regulatory backdrop are giving a lift to the stocks.
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