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After a blockbuster year, Wall Street had a weak start to 2024 due to overvaluation concerns and uncertainty about the timing of the Fed’s rate cut. Nasdaq Composite Index — an outperformer in 2023 — and Dow Jones are down 0.3% each in the initial two weeks of 2024, while the S&P 500 is up 0.3%. The dip presents a solid entry point for investors.

Given this, we have highlighted five ETFs from different zones that have plunged the most in the past couple of weeks 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 Oil & Gas Equipment & Services ETF (XES - Free Report), Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report), SPDR S&P Transportation ETF (XTN - Free Report) and Vanguard S&P Small-Cap 600 Value ETF (VIOV - Free Report) are poised to outperform if the stock market continues to move higher.

Current Market Trends

The latest Fed minutes show that the central bank wouldn’t cut rates as aggressively as expected for this year. This suggests an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control.

The latest data on inflation, which came in modestly hotter than expected, has dampened market expectations about an interest rate hike as soon as March. Though the job data report for December came in stronger than expected, it also cast doubt on the expectations of March rate cuts. The disappointing manufacturing data also added to the chaos. The U.S. manufacturing sector slipped further into contraction during December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.

While the timing of interest rates cut is uncertain, the Fed penciled in three rate cuts for this year in its last meeting. This shift in its monetary policy approach is a result of gradual control of inflation and aims to support a stable economic environment without triggering a recession or a significant rise in unemployment. Lower interest rates generally lead to reduced borrowing costs, which can stimulate economic growth.

We have highlighted the ETFs in detail below:

SPDR S&P Semiconductor ETF (XSD) – Down 6.5%

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 39 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.4 billion and an average daily volume of about 51,000 shares. SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #1.

SPDR S&P Oil & Gas Equipment & Services ETF (XES) – Down 6.1%

The energy sector has shown some promise, driven by the new geopolitical risk in West Asia, which has threatened oil supply in the region. West Asia is one of the most important oil-producing and transporting zones. SPDR S&P Oil & Gas Equipment & Services ETF tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 33 stocks in its basket with AUM of $305.2 million.

SPDR S&P Oil & Gas Equipment & Services ETF charges 35 bps in fees per year from investors and trades in an average daily volume of 121,000 shares. It has a Zacks ETF Rank #2 with a High risk outlook.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) – Down 5%

The consumer discretionary sector is expected to benefit from the potential lower borrowing costs, which can lead to increased 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 86 securities in its basket, with specialty retail taking the largest share at 32.8%. Household durables and hotels, restaurants and leisure account for double-digit exposure each.

Invesco S&P SmallCap Consumer Discretionary ETF has attracted $35.2 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 with a High risk outlook.

SPDR S&P Transportation ETF (XTN) – Down 4.7%

The transport sector will likely see a surge on a rise in global trade volume in 2024. SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index, holding 43 stocks in its basket. About 31% of the portfolio is dominated by cargo ground transportation, while passenger airlines and air freight & logistics round off the next two with double-digit exposure each.

With AUM of $193.2 million, SPDR S&P Transportation ETF charges 35 bps in fees per year from its investors and trades in a volume of around 14,000 shares a day. It has a Zacks ETF Rank #2 with a High risk outlook.
  
Vanguard S&P Small-Cap 600 Value ETF (VIOV) – Down 4.3%

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. Vanguard S&P Small-Cap 600 Value ETF follows the S&P Small-Cap 600 Value Index, which is composed of the value companies in the S&P 600. It holds 523 securities in its basket, with key holdings in financials, industrials and consumer discretionary.

Vanguard S&P Small-Cap 600 Value ETF has amassed $7.8 billion in its asset base and charges 18 bps in annual fees. It trades in an average daily volume of 75,000 shares and has a Zacks ETF Rank #1 with a Medium risk outlook.

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