4 Sector ETFs to Win from October Inflation Data

The annual inflation rate in the United States decelerated for fourth month to 7.7% in October, the lowest since January, and below forecasts of 8%. It compares with 8.2% in September. Compared to the previous month, the CPI rose 0.4%, below expectations of 0.6%.

Shelter made up more than half of the increase (0.8%). At the same time, cost of medical care services (-0.6%) and commodities (0%) contributed negatively to the CPI. Still, figures hint at the strong inflationary pressures and a broad price increase across the economy, mainly in the services sector.

Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of rising inflation. Below we highlight those.

Transportation

The transportation index jumped 0.8% sequentially in October after an uptick of 1.9% in September. The index gained 15.2% year over year.

SPDR S&P Transportation ETF XTN has a Zacks Rank #3. Trucking takes about 39.8% of the fund, followed by Airlines (25.81%), Air Freight & Logistics (18.61%).

Restaurants

The food away from home index rose 0.9% sequentially in October after rising by the same percentage in September. This points to the fact that restaurants are charging higher to compensate for the increased food costs.

AdvisorShares Restaurant ETF EATZ – The AdvisorShares Restaurant ETF is an actively managed exchange-traded fund that seeks to achieve its investment objective by investing at least 80% of its net assets in securities of companies that derive at least 50% of their net revenue from the restaurant business.

Real Estate

Weighted shelter makes up 32.77% of CPI, of which 7.8% is rent and 23.68% is private housing, per data from MacroMicro. Shelter costs rose 0.9% in October, same as September. Year over year, prices are up 6.9%. Rising home prices also boosted the demand for real estate.

Zacks Rank #3 Vanguard Real Estate ETF VNQ should thus win. The underlying MSCI US Investable Market Real Estate 25/50 Index is made up of stocks of large, mid-size, and small U.S. companies within the real estate sector. The fund yields 3.84% annually.

Energy

The energy sector tends to perform well in an inflationary environment. Revenues of energy stocks are dependent on energy prices, a key factor of inflation indices. The operating backdrop of the sector, too, is bullish. Oil prices have been rising since the beginning of 2022.

The energy index rose 1.8% sequentially in October after a decline of 2.1% in September. Fuel oil marked a considerable gain in the month. The upside in crude oil prices was triggered by factors like easing COVID-19 concerns, supply shortages, and geopolitical tensions in energy-rich Eastern Europe and the Middle East.

Zacks Rank #2 SPDR S&P Oil & Gas Exploration & Production ETF XOP could be a good play here.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.