The S&P 500 has dropped 19.4% in 2022. It marked the largest calendar-year decline since a 38% plunge in Lehman Bother’s crisis-laden 2008. Investors have been extremely worried about recession fears now, probably due to the relentless market forecasts. Inflation fears rather took a backseat as the price index has started showing a downtrend.
Goldman Sachs, Bank of America and JPMorgan predict a U.S. recession in 2023. Everyone’s pandemic savings are getting depleted. As of October, the savings rate stood at 2.3%, down from a high point of 4.7% earlier this year and 7.3% in 2021, according to Vox, quoted on Yahoo Finance.
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Along with depletion of trillions of dollars from the world stocks due to high inflation, Russia-Ukraine war, rising rates and China’s zero-Covid policy, the year caused a chaos in the bond and crypto currency market. The bond market went through its worst year in modern history.
The Fed has hiked rates several times in 2022. The policymakers also forecast that their key short-term rate will reach a range of 5% to 5.25% by the end of 2023, before being slashed to 4.1% in 2024. This suggests that the Fed is prepared to hike its benchmark rate by additional three-quarters of a point and then stay put till the end of 2023. Not only, the Fed, most other central banks have also been on the rate-hike mode.
Analysts now project S&P 500 earnings to expand 2.2% year over year in 2023, down from expectations of 6.5% growth they forecast in the beginning of September, according to Bloomberg Intelligence, quoted on Yahoo Finance. Against this backdrop, below, we highlight a few top-ranked ETFs that may be considered for 2023. SPDR These ETFs have a lower P/E ratio than the S&P 500 ETF Trust SPY (P/E: 21.70X).
Energy
SPDR S&P Oil & Gas Exploration & Production ETF XOP – Zacks Rank #2 (Buy); P/E: 13.25X
Energy stocks have room to go higher, even after a successful run this year, Tortoise portfolio manager Rob Thummel told Yahoo Finance. Some energy ETFs are still cheap. He also says the biggest driver for energy stocks going forward is the yield they offer investors.
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In China, more cities are easing COVID-19-related restrictions, prompting expectations of increased demand in the world’s top oil importer. Russian oil exports could decline by two million barrels per day by year-end 2023, The Fitch Group said, as quoted on CNBC. This, in turn, may boost oil prices higher.
Dividend
SPDR Portfolio S&P 500 High Dividend ETF SPYD – Zacks Rank #1 (Strong Buy); P/E: 14.38X
Dividend investing was in vogue in 2022 amid huge volatility and uncertainty. These are major sources of consistent income for investors in any type of market. Inflows to dividend ETFs were 25% higher in 2022 than 2021’s record, per a Bloomberg article. This is especially true as high dividend paying stocks are gaining appeal in a rising rate environment as bond ETFs underperform in a rising rate environment. The fund SPYD yields 4.99% annually (read: 5 Cheap Dividend ETFs to Buy and Hold for 2023).
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All-Cap Value
Global X SuperDividend U.S. ETF DIV – Zacks Rank #2; P/E: 15.36X
The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend yielding equity securities in the United States. The fund yields 6.62% annually. Notably, value stocks perform better in a rising rate environment than growth stocks.
Biotech
SPDR S&P Biotech ETF XBI – Zacks Rank #1; P/E: 12.70X
With the pandemic being largely managed, thanks to the rollout of vaccines in record time, the biotech sector’s focus had shifted to new drug approvals, label expansion of existing drugs and acquisitions in 2022. Meanwhile, the legal marijuana market has ballooned lately, resulting in a multibillion-dollar business. But with Omicron’s new variant flexing muscle at the start of the New Year, biotech sector should again come at the front. Plus, the sector’s non-cyclical nature makes it important even amid global growth slowdown.
