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After the third consecutive monthly loss since the onset of the COVID pandemic in March 2020, Wall Street staged a solid comeback at the start of November. Most of the gains were driven by optimism following comments from Federal Reserve Chairman Jerome Powell. Investors reacted positively to Powell's "slightly dovish" stance on the direction of monetary policy, which allayed fears of interest rates staying higher for longer than expected.

In fact, the three major indices logged in the best week of 2023. The stunning performance came just a week after the S&P 500 slid into correction territory, underscoring increased investor confidence. The solid trend is likely to continue at least this month.

Given this, we have highlighted five ETFs from different zones that have plunged the most over the past three months but have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These products, namely, SPDR S&P Semiconductor ETF (XSD - Free Report), SPDR S&P Transportation ETF (XTN - Free Report), Janus Henderson Small Cap Growth Alpha ETF (JSML - Free Report), First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID - Free Report) and Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report) are poised to outperform if the stock market continues to move higher.

Improving Market Trends

The Fed, in its last week meeting, voted to hold interest rates at their highest range in 22 years and investors bet that the central bank may be done hiking. The latest soft monthly job report bolstered the idea that the Fed is done with rate hikes. Federal Reserve Chair Jerome Powell indicated that some softening in the labor market would likely be necessary to sustain the inflationary downturn.

The world’s largest economy added lower-than-expected 150,000 jobs in October while the unemployment rate picked up to its highest level since January 2022 at 3.9%. This has pushed Treasury yields down, driving up the equities.

Better-than-expected earnings added to the strength. With more than 60% of the third-quarter results already out, earnings are poised to grow despite the significant energy sector drag, which follows three back-to-back quarters of declines.

Total earnings for the 311 S&P 500 members that have reported results so far are up 2.3% from the same period last year on 2% higher revenues, with 80.7% beating EPS estimates and 61.7% beating revenue estimates. Earnings growth represents a notable improvement when compared to the recent quarters. Still, the revenue growth pace marks a clear decelerating trend.

We have highlighted the ETFs in detail below:

SPDR S&P Semiconductor ETF (XSD) – Down 16.8%

The expansion of artificial intelligence (AI) applications holds the promise of ushering in fresh opportunities for growth within the sector. SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broader technology sector and tracks the S&P Semiconductor Select Industry Index.

It holds 38 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.2 billion and an average daily volume of about 57,000 shares. SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #1.

SPDR S&P Transportation ETF (XTN) – Down 16.4%

The transport sector will likely see a surge from strong holiday travel demand. SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index, holding 44 stocks in its basket. About 32% of the portfolio is dominated by cargo ground transportation, while passenger airlines, air freight & logistics round off the next two with double-digit exposure each.

With AUM of $180.7 million, SPDR S&P Transportation ETF charges 35 bps in fees per year from its investors and trades in a volume of around 13,000 shares a day. It has a Zacks ETF Rank #2 with a High risk outlook.

Janus Henderson Small Cap Growth Alpha ETF (JSML) – Down 11.9%

Small caps seem to be good bets at beaten-down prices. Small-cap companies benefit from a resilient economy as these are more domestically tied and outperform when the economy improves. Janus Henderson Small Cap Growth Alpha ETF offers exposure to resilient growth companies with proven operational excellence to provide investors with the opportunity to experience the long-term growth potential of the small-cap asset class through a variety of market environments. It follows the Janus Henderson Small Cap Growth Alpha Index.

Janus Henderson Small Cap Growth Alpha ETF holds 178 stocks in its basket, with key holdings in industrials, healthcare, information technology and financials. Janus Henderson Small Cap Growth Alpha ETF has been able to manage assets worth $143.2 million and trades in a lower volume of 15,000 shares a day on average. It charges 30 bps in annual fees and has a Zacks ETF Rank #2.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) – Down 11.6%

The clean energy space is poised to profit from the growing trend toward sustainability. First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund offers exposure to stocks in the grid and electric energy infrastructure sector. It follows the Nasdaq Clean Edge Smart Grid Infrastructure Index and holds 100 stocks in its basket.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund has accumulated $879.6 million in its asset base and trades in a volume of 67,000 shares a day on average. It charges 58 bps in annual fees and has a Zacks ETF Rank #2.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) – Down 9.1%

Solid economic growth will have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. Invesco S&P SmallCap Consumer Discretionary ETF targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 85 securities in its basket, with specialty retail taking the largest share at 34.3%. Household durables, and hotels, restaurants and leisure account for double-digit exposure each.

Invesco S&P SmallCap Consumer Discretionary ETF has attracted $28.4 million in AUM and charges 30 bps in annual fees. It trades in an average daily volume of about 2,000 shares and has a Zacks ETF Rank #2.

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