Wall Street has suffered a disastrous 2022, with the S&P 500 losing about 15.5% (as of Dec 5, 2022). High inflation, rising rates, geopolitical tensions and supply-chain woes due to the zero-Covid policy in China made matters most difficult this year. The Dow Jones has lost 6.3% this year, the Nasdaq has recorded as heavy as 27.6% losses, while the small-cap Russell 2000 is off 16.7%.
Such stock market performance has yielded many losers this year but many of these may come out as winners in the coming days. Those stocks and ETFs currently have a beaten-down valuation and higher chances of outperformance ahead.
This is especially true given the latest comments from the Federal Reserve Chairman Jerome Powell that signaled smaller interest rate increases starting in December. Traders expect the Fed to increase rates by 50 bps in December, with the rates peaking in June 2023.
Additionally, the holiday season started with a big bang despite concerns about inflation. Meanwhile, the U.S. economy added 263,000 jobs in November 2022, above market forecasts of 200,000, per tradingeconomics.
Against this backdrop, below, we highlight a few Zacks Rank #1 (Strong Buy) ETFs that have been down in the one-year frame, but has been showing positive momentum lately.
ETFs in Focus
VanEck Semiconductor ETF
SMH
– Zacks Rank #1
Semiconductor companies have been in pain this year, but the CHIPS Act may help them recoil. The $280-billion Chips Act addresses the current shortage of semiconductors in Europe. With the Chips Act, the EU looks to double its global market share in semiconductors from 10% to at least 20% by 2030 in order to ensure the EU’s future technological independence. The Act included $52 billion in aid to domestic semiconductor fabrication plants, per various sources.
The fund has lost 26% in the past year and 10% in the past six months. But the fund has bounced back lately as it gained 7.7% past month.
Global X Cloud Computing ETF
CLOU
–
Zacks Rank #1
The global cloud computing market is projected to increase from $480.04 billion in 2022 to $1,712.44 billion by 2029, at a CAGR of 19.9% in the forecast period, per fortunebusinessinsights.com.
Amazon.com Inc
.’s
AMZN
cloud unit plans to recruit employees next year and keep building new data centers, per a Bloomberg article. The news has come at a time when Amazon is reportedly cutting as many as 10,000 jobs from other departments. It also indicates that the company hasn’t stopped investment plans for its most profitable business.
The fund CLOU has lost 36.3% past year and 8.5% in the past six months. But the fund has advanced 3.5% past month.
Vanguard Financials ETF
VFH
–
Zacks Rank #1
Since the Federal Reserve chief predicted a smaller interest rate hike from December, this should lower short-term bond yields and increase the long-term ones (based on higher risk-on sentiments), resulting in a steepening yield curve and higher net interest margins for financial companies. This kind of scenario is great for financial stocks and ETFs.
The fund VFH has lost 6.9% past year but added 1.9% in the past six months and 9% in the past one month.
WisdomTree U.S. SmallCap Dividend ETF
DES
– Zacks Rank #1
Small-cap stocks normally perform better in this period of a year. This is because of the January Effect. January Effect is a seasonal increase in stock prices due largely to year-end tax considerations. Investors redeploy their capital to speculate on weaker performers in January after selling winners in December to create tax losses. This phenomenon pushes the stock market higher in the first month of the year.
According to some market experts, the January Effect actually runs from mid-December through February, with small caps continuing to outperform their large-cap cousins. The attraction of dividend is an added advantage for DES. DES was just off 1.5% past year and 0.1% in the past six months. The fund has moved up 8% past month.
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