5 ETFs To Ride On The Rotation To Cyclical Sectors

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The stock market is witnessing volatility lately triggered by surging long-term yields and the resultant inflation threat. Notably, the 10-year yields surged to new one-year high of 1.42% while 30-year yields touched the highest since January 2020 of 2.28%.

Higher yields indicate investors’ optimism in the economy that has encouraged a flight to cyclical sectors like energy, financials, materials and industrials, rotating out of the high-growth sectors like technology. As the cyclical sectors are tied to economic activities, these outperform when economic growth improves.

With the continued progress in more COVID-19 vaccines, rapid vaccination rollout and the prospect of further U.S. stimulus, the economy is on the mend and is on a speedy recovery path. The combination of factors will lead to pent-up demand, resulting in higher demand for all types of products and services in the economy. In particular, Americans will spend on big-ticket items such as vacations and weddings, companies will go on hiring sprees, and the transition to new technologies such as electric vehicles will accelerate.

Additionally, signs of a healing labor market and upbeat earnings with growing earnings estimates for the next quarters bode well for economic growth. Economists in a Wall Street Journal survey reveals that the U.S. economy will grow 4.3% this year, as the country exits the worst of the coronavirus pandemic. This marks a sharp increase from the 3.7% growth forecast for 2021 in last month’s survey. Goldman Sachs also raised its forecast for 2021 U.S. GDP growth to 6.8% from 6.6%.

Further, the stocks in the cyclical sectors are attractively valued at the current levels compared to the technology stocks, whose valuations rose to lofty levels.

As such, cyclical sectors are outperforming if we go by a one-week look. We have highlighted five ETFs from different cyclical sectors that led the way higher over the past week and have a Zacks ETF Rank #2 (Buy) or 3 (Hold).

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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