Published on 26 Mar 2023 on Zacks via Yahoo Finance
5 Top-Ranked ETFs With Lower P/E Ratio
Wall Street wrapped up its worst first nine months of a calendar year since 2002 as persistently high inflation and an economic downturn caused by an aggressive Fed rate hike continued to weigh on investor sentiment. This has made stocks cheaper, compelling investors to buy the dip (read: 5 Solid ETFs Under $20 for Your Portfolio).Using our database, first we selected ETFs with a Zacks Rank #1 (Strong Buy) or 2 (Buy). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a rising market. Then, we narrowed down the list to funds having a lower P/E ratio than 21.7 for the broad market fund SPY.We have highlighted five ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market. These are Invesco S&P SmallCap Energy ETF PSCE, U.S. Global Jets ETF JETS, First Trust Financials AlphaDEX Fund FXO, Invesco DWA Healthcare Momentum ETF PTH and Invesco S&P MidCap Value with Momentum ETF XMVM.All three major indices are in a bear market. The Dow Jones Industrial Average is down 21% while the S&P 500 is off 25%. The tech-heavy Nasdaq Composite has underperformed, tumbling 32%. The Federal Reserve has been on an aggressive tightening policy to fight skyrocketing inflation, which is near its highest levels since the early 1980s. In its fight, Fed Chair Jerome Powell raised interest rates by 75 bps for the fourth consecutive time that pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The rapid tightening has sparked worries of a recession, leading to a sell-off in the stock markets.An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending, thereby hurting economic growth (read: 4 ETFs to Play the Key Events in Q4).However, Wall Street started the week on a high note, with the S&P 500 staging its biggest two-day rally since 2020. The rally seems to come from the speculation that inflation might ease and interest rates have peaked. A slowing labor market suggests that inflation could fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively.
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