For immediate release
Chicago, IL – January 28, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: Financial Select Sector SPDR Fund XLF, AdvisorShares Restaurant ETF EATZ and Materials Select Sector SPDR Fund XLB
Here are highlights from Thursday’s analyst blog:
3 sector ETFs to win against rising rates
Wall Street has been choppy since the start of 2022 due to rising rates. At the end of January 26, 2022, the yield on the benchmark 10-year Treasury bond jumped 7 basis points to 1.85%. The yield on 30-year Treasury bills rose 4 basis points to 2.16%. The yield on the benchmark 2-year Treasury bond jumped 11 basis points to 1.13%. Rates rose in the US on Fed rate hike bets.
Higher inflationary expectations emanating from supply chain disruptions along with rising crude prices should make Fed members comfortable with rate hikes in the coming days. The Nasdaq, rich in technology and growth stocks, plunged 7.6% last week, marking its worst week since March 2020, while the S&P 500 (down 5.7%) and the Dow Jones (in down 4.6%) recorded considerable losses. The Nasdaq Composite has lost 12% this year as investors continue to pull back from high-growth tech stocks due to soaring interest rates.
Federal Reserve policymakers signaled they would likely pass their first interest rate hike since 2018 at their March meeting to combat soaring inflation. As of January 26, 2022, CME’s FedWatch tool said there is a 32.6% chance that 2022 will close with 125-150 rate basis points while a 28.1% chance is there for the year ends at 100-125 basis points.
Should we fear a rate hike?
Signs of a recovery in the US economy, while not strong across the board, are certainly greater than what we saw last year. According to a Reuters article, major U.S. banks believe current spending patterns indicate consumer well-being. Healthy consumers with money in the bank are eager to spend and borrow.
Although stocks are overvalued to some extent, an influence of consumer prosperity on the stock market will only be natural. Yes, stocks can also slide due to fear of a gradual increase in cheap dollar inflows. But, this hiccup may be short-lived.
Wealth effect at stake?
The Conference Board projects that real GDP growth in the United States will reach an annualized rate of 6% in the fourth quarter of 2021 compared to growth of 2.3% in the third quarter of 2021, and that the annual growth in 2021 will reach 5, 6% (year-on-year). The US economy is expected to grow 3.5% in 2022 and 2.9% in 2023.
And in a growing economy, most sectors benefit from a wealth effect, with some of the more cyclical corners making the most of this acceleration. These industries often falter in a declining economy, but are the biggest winners when glimmers of hope emerge.
Against this background, below are some sector ETFs that tend to gain in a rising rate environment.
Finance – Selected Financial Sector SPDR Funds
Discussions of the Fed’s March rate hike have recently boosted the space. The steepening of the yield curve is a favorable wind for bank stocks because they improve banks’ net interest margins. Indeed, interest rates on deposits are usually tied to short-term rates, while loans are often tied to long-term rates.
Consumer Discretionary – AdvisorShares Restaurant ETF
The consumer sector is cyclical in nature. The sector can be seen as a barometer of rising consumer income levels in an economy. However, online mainstream ETFs performed well during the height of the lockdown phase. With the economic reopening gaining momentum now, we expect home stocks to underperform and away stocks to take over now.
Foot traffic for the cafe chain’s top 10 performers was up 2.8% from two years ago in June 2021, Placer.ai found (according to a Yahoo Finance article). But in November 2021, the café space saw an 8.4% increase in foot traffic over 2019 levels, while December saw a 7.5% increase despite Omicron. The data demonstrates consumers’ willingness to spend away from home.
Materials – Materials Select Sector SPDR Fund
The industrials and materials sectors should also perform better in a rising rate environment. While US manufacturing data looks positive, the industrial sector should hold up well. US economic activity in the manufacturing sector rose in December, with the overall economy marking the 19th straight month of growth. This, in turn, would drive the demand for materials. Investors should note that material prices have remained stable in recent months.
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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.
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Selected Financial Sector SPDR ETFs (XLF): ETF Research Reports
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
AdvisorShares Restaurant ETF (EATZ): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.