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4 Sector ETFs for July

Sanghamitra Saha
·4-min read

Finally, the first half of 2020 passed by with an extremely downbeat Q1 (Wall Street’s worst quarter since fourth-quarter 2008) and an equally upbeat Q2 (best quarter since 1998). While the outbreak of coronavirus caused the massacre in markets in Q1, the unprecedented stimulus measures by global central banks and governments pulled the ailing global markets in Q2.

At the onset of 2H, the operating and investing backdrop looks mixed as the second wave of virus contagion has already hit while several economic datapoints are coming in upbeat thanks to the unlocking of economies. So, investors have to focus on reopening trade keeping the virus-led volatility in mind.

In this light, below we highlight a few sectors and their related ETFs that could be lucrative bets for the month of July.

Construction

The sector has been in great shape. Low mortgage rates have been aiding the housing sector. Despite coronavirus-led lockdowns, prices for existing homes rose 4.7% compared with April 2019, up from 4.6% in the previous month, according to the S&P CoreLogic Case-Shiller National Home Price Index. A potential post-pandemic “suburban revival” would boost home buying.

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Moreover, the Trump administration is reportedly preparing a nearly $1 trillion infrastructure proposal as part of its efforts to bolster the American economy.Invesco Dynamic Building & Construction ETF PKB is a way to tap the boom (read: A New $1T US Infrastructure Bill On The Way? ETF & Stock Picks).

Utilities

The sector is non-cyclical in nature. Coronavirus-led slowdown is here to stay with us, at least in the near term. The second wave of the contagion is palpable in states like Texas, Florida, Arizona and California. Some states re-issued social distancing restrictions, raising questions about the momentum of recovery. Against this backdrop, utilities stocks, which are deemed as recession-proof, is likely to excel. Moreover, rock-bottom interest rates and a QE policy is another positive for this capital-intensive sector. Utilities Select Sector SPDR Fund XLU is a greatly liquid form to tap the sector.

Medical

As the novel coronavirus is not showing any sign of slowdown, the race for vaccine development has heated up to bring the world back to normal. Currently, “there are at least a hundred horses in the race, and we've got some leaders up front,” per Marc Poznansky, the director of the Vaccine and Immunotherapy Center at Massachusetts General Hospital.

The World Health Organization has recognised some 10 prime candidates for potential vaccines as these have entered clinical trials. Plus, 114 candidate vaccines are in preclinical evaluation stage. Apart from vaccines, serious efforts are being made to launch effective treatments and testing kits. WhileHealth Care Select Sector SPDR Fund XLV is a popular way to tap the sector, the newly launched fund ETFMG Bio ETF GERM gives excellent coronavirus exposure.

Retail 

The retail sector was battered during lockdown. But as the economy started unlocking, sales began to soar. Retail sales in the United States surged 17.7% sequentially in May, breezing past the forecast of an 8% jump and after a record 14.7% slump in April. This was the biggest monthly gain ever. This indicates solid pent-up demand from consumers.

Moreover, U.S. consumer confidence jumped more than expected thanks to “relative improvement in unemployment claims” and solid government and Fed stimulus. SPDR SP Retail ETF XRT is a good play in this regard (read: Best Retail Sales Growth In May: Sector ETF & Stocks To Win).

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Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
 
SPDR SP Retail ETF (XRT): ETF Research Reports
 
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
 
Invesco Dynamic Building Construction ETF (PKB): ETF Research Reports
 
ETFMG Treatments, Testing and Advancements ETF (GERM): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report