4 Sector ETFs Upgraded to Buy
The undercurrents of the financial market are always in a state of flux. As we enter the second half of 2023, some key trends are surfacing that require attention from investors. One of the key trends that pulled the strings of the financial developments in the second quarter is renewed Fed rate hike worries.
Fed Chair Jerome Powell stated last week that most central bank officials anticipate raising interest rates by the end of 2023. While the Fed decided to maintain the target range at the June policy meeting, Powell's remarks point to the tightening of the monetary policy all over again. About 80% chance of a rate hike in July is currently priced in.
Meanwhile, the broader market is under the spell of the AI boom. Economic datapoints and the health of the U.S. consumer look more-or-less steady despite high inflation. A trend of manufacturing reshoring is emerging amid U.S.-China tensions. A transition is being noticed in the long-ailing housing market.
Against this backdrop, below, we highlight a few sector ETFs that have undergone a recommendation change at Zacks. These ETFs’ recommendations have been upgraded to Zacks Rank #1 (Strong Buy) or 2 (Buy) from a Zacks Rank #3 (Hold) or 4 (Sell).
ETFs in Focus
Technology – iShares Semiconductor ETF (SOXX) –Zacks Rank #3 to Zacks Rank #1
High demand for chips needed to create AI systems and increased usage of chips in automobiles should continue to benefit semiconductor makers. Data centers will also require more chips to handle AI workloads (read: 5 ETF Strategies to Follow in 2H23).
So, if you believe that the ongoing massive AI rally could be over anytime, better to bet on more value-centric AI beneficiaries like semiconductors to stay tuned with the continuing AI journey.
Industrials – Industrial Select Sector SPDR ETF (XLI) – #3 to #2
A manufacturing super-cycle may be in the cards due to the stimulus provided by President Biden. The 2022 CHIPS Act and the 2021 Infrastructure Law can act as winning examples of Biden's strategic industrial reforms. Reshoring and a shift toward automation infrastructure are the drivers for the industrial sector.
Consumer Discretionary – Fidelity MSCI Consumer Discretionary Index ETF (FDIS) – #3 to #2
Ebbing chances of U.S. recession is a plus for investors. The Fed boosted its 2023 economic growth expectations to 1% GDP gain, up from the 0.4% estimate in March. Consumer sentiment is decent. Upbeat retail sales give cues of consumers’ decent savings. The jobs market is also strong. Hence, the fund FDIS is a great bet here (read: ETFs to Invest as Consumers Shift to Economical Shopping).
Homebuilding – iShares U.S. Home Construction ETF ITB –#4 to #2
A resurgence of optimism has been seen in the homebuilder's market, with builder confidence reaching positive territory for the first time in almost a year, as per the National Association of Home Builders (NAHB)/Wells Fargo housing market index update.
A dearth of existing homes for sale is putting the spotlight on homebuilders despite prevailing market challenges. The return of stable traffic and improving supply chain as well as a less-hawkish Fed have also been fueling the homebuilding space (read: Revival in Homebuilders' Market: A Boon for ETFs and Stocks?).
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Get it free >>Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
iShares Semiconductor ETF (SOXX): ETF Research Reports
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
