After capping the strongest monthly performance since June, Wall Street is facing dual headwinds of an escalation in trade tensions and bouts of weak data, which signal slowing economy in the crucial holiday shopping season (read: Top & Flop ETFs of November).
This is especially true as President Trump is planning to restore tariffs on steel and aluminum imports from Brazil and Argentina and proposed tariffs of up to 100% on $2.4 billion worth of French products. Also, trade talks between Washington and Beijing have stalled as Trump said that he will wait until the November 2020 election to strike a deal. The President previously touted that he will impose tariffs on Chinese goods from Dec 15, as announced, if the deal is not reached. This has dented hopes of ending the lingering trade war, resulting in risk-off sentiments.
Meanwhile, latest data shows that U.S. manufacturing sector contracted for the fourth straight month in November with a steep drop in new factory orders. U.S. construction spending also unexpectedly fell in October as investment in private projects tumbled to its lowest level in three years.
However, the strong start to the holiday season paints an upbeat economic picture. The burst of heavy discounts and promotional deal has been paying off retailers both in-stores and online. About 190 million consumers shopped between Thanksgiving and Cyber Monday, according to the National Retail Federation (“NRF”). This is up 14% from last year’s figure. Out of these, more than 124 million consumers shopped in stores during the holiday weekend.
Per Adobe, online sales jumped 14.5% year over year to a record $4.2 billion on Thanksgiving. Black Friday and Small Business Saturday also witnessed record figures of $7.4 billion, up 20% and $3.6 billion, up 18%, respectively. Notably, Thanksgiving sales surpassed $4 billion for the first time ever. Cyber Monday also broke another record by raking in $9.4 billion in online sales (read: Stocks & ETFs to Profit From Cyber Monday Deals).
Further, the stock market has entered a typically strong period. December has historically been the strongest month of the year despite the S&P 500 dropping more than 9% last year after months of selling. According to Sam Stovall, chief investment strategist at CFRA, the S&P 500 gained 1.6% on average with positive movements in 76% of the time.
Amid the tug of war between bulls and bears, it is difficult to plan investments that could fetch sure shot returns. In this case, we have highlighted some investing ideas that could prove to be extremely beneficial for investors this holiday season:
Focus on Low Risk Products
Investors should prepare themselves for volatility amid the return of trade jitters. While there are many ways to survive the market turmoil, investing in lower volatility ETFs could reduce losses in declining markets, while generate decent returns when the markets rise. ETFs like iShares Edge MSCI Min Vol USA ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV,SPDR Russell 1000 Low Volatility Focus ETF (ONEV) and SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV) could be compelling choices. Most of these have a Zacks ETF Rank #2 (Buy) (read: Low Volatility ETFs in Focus).
Add Value to Your Portfolio
Value ETFs have proven to be outperformers over the long term and are less susceptible to trending markets. This is because value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. As such, value ETFs have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts. Among these, Vanguard Value ETF VTV, iShares Russell 1000 Value ETF IWD, Vanguard Mega Cap Value ETF (MGV) and Schwab U.S. Large-Cap Value ETF (SCHV) have a Zacks ETF Rank #2 (read: Value Investing Regains Appeal: Top-Ranked ETFs & Stocks).
Bet on Retail ETFs
Retailers have a tradition of tapping the holiday fervor as about 25-40% of sales are generated during this season. If we go by history, retailers have been the clear outperformers in the stock market in the week leading to Black Friday and in the days thereafter.
According to NRF, holiday sales are expected to grow 3.8-4.2% for November and December to $727.9-$730.7 billion. This is higher than last year’s growth of 2.1% and the five-year average of 3.7%. Of these, online and other non-store sales are likely to increase 11-14% to $162.6-$166.9 billion, up from $146.5 billion last year. eMarketer forecasts U.S. holiday retail sales to cross trillion-dollar for the first time, up 3.8% year over year.
Given the holiday optimism, investors can bet on retail ETFs. Amplify Online Retail ETF IBUY, SPDR S&P Retail ETF XRT, VanEck Vectors Retail ETF RTH and ProShares Online Retail ETF ONLN. Most of these products have a Zacks ETF Rank #3 (Hold) (read: Retail ETFs Up on Q3 Earnings).
Emphasis on Dividends
Though dividend-focused stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. These are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
As such, dividend-focused ETFs offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. While there are several dividend ETFs, here are some of the top-ranked high-yielding products — Vanguard High Dividend Yield ETF VYM, iShares Core High Dividend ETF HDV and SPDR Portfolio S&P 500 High Dividend ETF SPYD. The trio has a Zacks ETF Rank #2 (read: Fed Cuts Rates, Signals Pause: Trick or Treat for ETFs?).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.