Trade war and increasing inflationary expectations were fears with which investors stepped into March. U.S. Treasury yields jumped on March 2 as a repercussion of President Donald Trump’s tariff announcement the day before that stoked trade war and even-higher inflation concerns. As of Mar 2, 2018, the yield on benchmark U.S. Treasuries was 2.86%, up 5 bps from the day before (read: Watch These ETFs as Trade War Risks Rise).
In any case, the broader was stricken with inflation and rising rate fears from early February. And now, Trump’s announcement that the United States will impose a 25% tariff on steel imports and a 10% tariff on aluminum imports may push up inflation levels. If the tariffs result in an increase in raw material cost for manufacturers that use these metals, they might try to pass on a certain portion of higher material prices to consumers. This in turn will add on to inflationary pressures.
But then March is a seasonally strong month for stocks. A consensus carried out from 1950 to 2017 shows that January ended up offering positive stock returns in 43 years and negative returns in 25 years, per moneychimp.com, with an average return of positive 1.11%.
This makes it more important to pin point ETFs that can safeguard investors from any unexpected fall or sudden market swing as well as earn some gains. So, investors can have a look at the below-mentioned ETF choices:
PowerShares KBW Bank ETF KBWB
The financial sector enjoys the seasonal tailwind in March. Plus, with the possibility of faster Fed rate hikes doing rounds, banking stocks are likely to benefit from a rising rate environment. Major banks have already come up with strong earnings reports in the latest reporting cycle, clearing the path for the banking ETF to outperform. KBWB also has a Zacks ETF Rank #1 (Strong Buy) (read: Inside Q4 Earnings Performance of Banking ETFs).
Fidelity Dividend ETF for Rising Rates FDRR
With rising rate concerns prevailing in the U.S. market, FDRR could be a great pick. The fund looks to track the performance of stocks of large- and mid-cap dividend-paying companies that are expected to continue to pay out and hike their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.
iShares U.S. Home Construction ETF ITB
The housing sector is all set to enter the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar starts.
Valuations also look attractive. Homebuilder shares recently traded at 10 times of 2018 profit estimates against the overall market’s P/E ratio of 17, despite the fact that companies are expected to report double-digit earnings growth this year and next, as per barron’s.com.
Vanguard Dividend Appreciation ETF VIG
In a volatile market and amid rising rate environment, it is better to tap “companies with modest yields and plenty of potential to grow their payments. Typically, dividend growers trade at a 20% premium to high yielders, but right now the growers are slightly cheaper,” per Bank of America Merrill Lynch (read: 4 Safe Dividend Growth ETFs & Stocks for a Faltering Market).
Dividend aristocrats are the blue-chip dividend-paying companies, which have a long history of raising dividend payments year over year. Further, many U.S. companies hoard a pile cash. Under the new tax plan, many large U.S. companies will bring back their offshore earnings to the United States without extra taxes. And market watchers expect considerable amount of the total tax savings to go to dividends and buybacks.
Guggenheim S&P 500 Pure Value RPV
After a growth stock rally in 2017, Wall Street is behaving awkwardly this year. The likelihood of the returns of the same good old bulls are less likely in the near term. So, maybe it’s time for value stocks and ETFs (read: Buffett Backs Great Rotation: 4 Value Stocks & ETFs to Buy).
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