We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Sector ETFs to Buy for the Fourth Quarter of 2024
Read MoreHide Full Article
The third quarter of 2024 has been extremely volatile for the U.S. stock market. Recession concerns, geopolitical tensions, a fading craze for AI (artificial intelligence), and uncertainty over the upcoming elections have left investors uneasy.
However, optimism about potential Fed rate cuts has provided some support to the market. As a result, investors shifted away from technology stocks, favoring smaller companies and sectors that stand to benefit more from interest rate reductions. The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 added 5.1%, 8.2%, 2.2% and 8.6%, respectively.
Will Q4 Work Wonders for Wall Street?
Over the past decade, the fourth quarter of the year has actually been the best for the stock market, with the Dow, the S&P 500 and the Nasdaq up at least 4% on average, per a CNBC article. The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in four quarters over the past 10 years, trading positive 80% of the time.
Moreover, inflation is easing and rates are falling. Against this backdrop, below we highlight a few sector ETFs that could be great picks for Q4.
As of Sept. 27, 2024, the 10-year U.S. treasury yield was 3.75% and the two-year U.S. treasury bond yields were 3.55%. On the other hand, at the start of the month, the 10-year U.S. treasury yield was 3.84% and the two-year U.S. treasury bond yields were 3.88% (read: Can Bank ETFs Gain Hugely Amid Rate-Cut Cycle?).
This indicates that the spread between the two yields has been increasing, resulting in a steepening of the yield curve, which is great for banking stocks’ operation as it boosts net interest margin. If the trend continues, the cheaper valuation of the financial sector will give it a leeway to outperform in Q4.
Technology has turned out to be one of the most profitable sectors in recent times, driven by the artificial intelligence (AI) boom, easing inflation and a surge in “magnificent seven.” The ongoing Fed policy easing may drive the sector even higher. The upheaval in the sector’s performance in the third quarter happened due to still-higher rates and uncertainty regarding the timing of the return-on-investment on AI.
But then, investors should note that consumers often buy and gift tech gadgets during the holiday season. Plus, AI mania is still thriving. This should make XLK a winning proposition (read: AI Mania in Fine Fettle: ETFs to Invest).
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 — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.
The National Retail Federation (NRF) predicts that retail sales in 2024 will rise between 2.5% and 3.5%, reaching a total of $5.23 trillion to $5.28 trillion. The 2024 sales forecast compares with 3.6% annual sales growth of $5.1 trillion in 2023. The 2024 forecast includes online and non-store sales, which are expected to grow between 7% and 9% year over year.
Thanksgiving and Christmas are normally two of the most traveled holidays in the fourth quarter. A surge in travel is expected this holiday season, especially with Christmas Eve and New Year's Eve falling over the weekend. High demand for holiday travel and rising fuel prices may push prices up for tickets for airlines and the other modes of travel This makes transportation stocks, as a whole, a great buy for Q4.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
4 Sector ETFs to Buy for the Fourth Quarter of 2024
The third quarter of 2024 has been extremely volatile for the U.S. stock market. Recession concerns, geopolitical tensions, a fading craze for AI (artificial intelligence), and uncertainty over the upcoming elections have left investors uneasy.
However, optimism about potential Fed rate cuts has provided some support to the market. As a result, investors shifted away from technology stocks, favoring smaller companies and sectors that stand to benefit more from interest rate reductions. The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 added 5.1%, 8.2%, 2.2% and 8.6%, respectively.
Will Q4 Work Wonders for Wall Street?
Over the past decade, the fourth quarter of the year has actually been the best for the stock market, with the Dow, the S&P 500 and the Nasdaq up at least 4% on average, per a CNBC article. The S&P 500 had traded positively 80% of the time, according to a CNBC analysis of Kensho, a market data analysis platform. The Dow Jones Industrial Average had added 5% in four quarters over the past 10 years, trading positive 80% of the time.
Moreover, inflation is easing and rates are falling. Against this backdrop, below we highlight a few sector ETFs that could be great picks for Q4.
Sector ETFs in Focus
Financials – Financial Select Sector SPDR ETF (XLF - Free Report) ) – Zacks Rank #1 (Strong Buy)
As of Sept. 27, 2024, the 10-year U.S. treasury yield was 3.75% and the two-year U.S. treasury bond yields were 3.55%. On the other hand, at the start of the month, the 10-year U.S. treasury yield was 3.84% and the two-year U.S. treasury bond yields were 3.88% (read: Can Bank ETFs Gain Hugely Amid Rate-Cut Cycle?).
This indicates that the spread between the two yields has been increasing, resulting in a steepening of the yield curve, which is great for banking stocks’ operation as it boosts net interest margin. If the trend continues, the cheaper valuation of the financial sector will give it a leeway to outperform in Q4.
Technology – Technology Select Sector SPDR ETF (XLK - Free Report) ) – Zacks Rank #1
Technology has turned out to be one of the most profitable sectors in recent times, driven by the artificial intelligence (AI) boom, easing inflation and a surge in “magnificent seven.” The ongoing Fed policy easing may drive the sector even higher. The upheaval in the sector’s performance in the third quarter happened due to still-higher rates and uncertainty regarding the timing of the return-on-investment on AI.
But then, investors should note that consumers often buy and gift tech gadgets during the holiday season. Plus, AI mania is still thriving. This should make XLK a winning proposition (read: AI Mania in Fine Fettle: ETFs to Invest).
Consumer Discretionary – VanEck Retail ETF (RTH - Free Report) ) – Zacks Rank #2 (Buy)
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 — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.
The National Retail Federation (NRF) predicts that retail sales in 2024 will rise between 2.5% and 3.5%, reaching a total of $5.23 trillion to $5.28 trillion. The 2024 sales forecast compares with 3.6% annual sales growth of $5.1 trillion in 2023. The 2024 forecast includes online and non-store sales, which are expected to grow between 7% and 9% year over year.
Transportation– SPDR S&P Transportation ETF (XTN - Free Report) ) – Zacks Rank #2
Thanksgiving and Christmas are normally two of the most traveled holidays in the fourth quarter. A surge in travel is expected this holiday season, especially with Christmas Eve and New Year's Eve falling over the weekend. High demand for holiday travel and rising fuel prices may push prices up for tickets for airlines and the other modes of travel This makes transportation stocks, as a whole, a great buy for Q4.