Wall Street Still Has Room to Run: ETFs to Play

Wall Street has been hovering around a record high level. The S&P 500 is up 7.7% past month, the otherwise laggard Dow Jones has gained about 5.7%, the Nasdaq Composite has advanced 9.8% and the small-cap index Russell 2000 has jumped 8.6%. The S&P 500 recorded the longest series of records since 1997.

- Zacks

We are now in November, which is a historically upbeat month for the stock market. So is December. According to moneychimp.com, a consensus carried out from 1950 to 2020 has revealed that November ended up offering positive returns in 48 years and negative returns in 23 years, with an average positive return of 1.53%, while December saw 53 up years and 18 down years with an average positive return of 1.39%.

The S&P 500 rises about 4.3% in the fourth quarter, per Barron’s, making it the best quarter of the year. Over the past decade, the S&P 500 Index has averaged a 4% gain, according to a CNBC analysis of Kensho released in 2019. This year is unlikely to be an exception. We will tell you why.

5 Key Factors for a Further Wall Street Rally

Holiday Season

The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events —Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.

The National Retail Federation (“NRF”) projects November/December retail sales in the range of $843.4 billion to $859 billion, up 8.5% to 10.5% from 2020 results. The NRF said its forecast — excluding automobile dealers, gas stations and restaurants and covering Nov 1 to Dec 31— beat the previous high of $777.3 billion, up 8.2%, in 2020 as well as the average gain of 4.4% over the past five years.

Deloitte forecasts considerably higher holiday sales for 2021, estimating growth of 7% to 9% to between $1.28 and $1.3 trillion during the November-to-January time span. That is more than Deloitte’s 1% to 1.5% projection for 2020 and the U.S. Census Bureau’s November 2020-to-January 2021 sales growth measure of 5.8% to $1.19 trillion (seasonally adjusted, excluding autos and fuel).

More Antiviral Pills & Booster Shots in the Way?

After widespread COVID-19 vaccination, boosters are available now. More companies are trying to come up with antiviral therapies. Recently, Pfizer has announced that its experimental antiviral pill cut the rates of hospitalization and death for adults by 89%.

Last month, Merck & Co. and partner Ridgeback Biotherapeutics LP submitted their experimental pill to regulators as a study revealed that it lowered the risk of getting seriously ill or dying by half in patients with mild-to-moderate Covid-19. Such flow of news has every reason to boost the pharma and biotech funds.

Biden's Infrastructure Plan

On Nov 5, in a majority voting of 228-206, the House of Representative passed a $1.2 trillion bipartisan infrastructure bill. The bill was cleared by the Senate in August. This would put $550 billion of new funding into transportation projects, the utility grid and broadband.

U.S. Economy to Gain Momentum in Q4

The U.S. economy lost its growth momentum in the third quarter mainly due to the resurgence of the Delta variant of COVID-19. However, the economy should rebound in Q4. In its latest projection on Nov 4, the Atlanta Fed reported that the U.S. economy will grow by 8.5% in fourth-quarter 2021. This indicates an improvement from 8.1% on Nov 1 and 6.6% on Oct 29. The U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarters of this year, respectively.

Upbeat Earnings

Per the Earnings Trends issued on Nov 3, 2021, for the 363 S&P 500 members that have reported Q3 results through Nov 3, total earnings and revenues are up +40.1% and +18.5%, respectively from the same period last year, with 81.0% beating EPS estimates and 73.6% beating revenue estimates. The proportion of these 363 index members beating both EPS and revenue estimates is 63.4%. The S&P 500 earnings growth for the upcoming Q4 is projected to be 20.2% over 10.6% revenue growth.

Top-Ranked ETFs to Play

Against this backdrop, we highlight a few top-ranked ETFs that could soar higher in the coming days.

iShares U.S. Transportation ETF IYT – Zacks Rank #2 (Buy)

As economic reopening is speeding up, sectors that are highly related to economic reopening should benefit. Moreover, with the holiday season approaching, transportation stocks have every reason to cheer as even online deliveries will need the assistance of faster and efficient transportation.

Vanguard High Dividend Yield ETF VYM – Zacks Rank #2

The underlying FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends that generally are higher than average. The fund yields 2.69% annually, much higher than the benchmark U.S. Treasury yield.

VanEck Retail ETF RTH – Zacks Rank #2

Investors should also note that the consumer discretionary sector is cyclical in nature, and typically performs better in a trending economy, irrespective of rate hike fear. The cyclicality of the sector and an expected surge in sales in the holiday season make RTH our choice.

Industrial Select Sector SPDR Fund XLI – Zacks Rank #1 (Strong Buy)

The industrial sector has been one of the top performers of the fourth quarter over the last 10 years with an average return of around 6%, per CNBC.

Vanguard S&P SmallCap 600 Growth ETF VIOG – Zacks Rank #2

Small-cap stocks are enjoying great momentum currently. Plus, these domestically-focused stocks are great tools to make the most of a trending economy. A likely gain in the U.S. dollar amid the Fed QE taper would also not hurt the pint-sized stocks due to its limited foreign exposure.

Health Care Select Sector SPDR ETF XLV – Zacks Rank #1

With news flowing in on the COVID-19 vaccines and treatments, healthcare is sure to rule in the coming few months.

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Industrial Select Sector SPDR ETF (XLI): ETF Research Reports

 

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

 

iShares U.S. Transportation ETF (IYT): ETF Research Reports

 

VanEck Retail ETF (RTH): ETF Research Reports

 

Vanguard High Dividend Yield ETF (VYM): ETF Research Reports

 

Vanguard S&P SmallCap 600 Growth ETF (VIOG): ETF Research Reports

 

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Zacks Investment Research