Cyclical Stocks, Value ETFs Rally as U.S. Markets Rebound

As U.S. markets rebounded and pushed toward new record highs on Friday, economically sensitive cyclical sectors and the value style surged, brushing off the growth concerns earlier in the week.

The equity market looked past the recent rally in bond markets on fears that the recovery in the U.S. economy was losing momentum in the face of the more transmissible Delta variant of the coronavirus, Reuters reports.

“In any sell off, there have been buyers, and this pattern is repeated for months where any meaningful selloff is met almost immediately by way of buying,” Rick Meckler, partner at Cherry Lane Investments, told Reuters.

Investors are now waiting on second quarter earnings as big banks are set to kick off the earnings season next week.

Analysts projected earnings growth of 65.8% for S&P 500 companies for the quarter, compared to a previous forecast of 54% growth at the start of the period, according to Refinitiv IBES data.

“Once we enter the earnings season, we will expect a sort of cushion for the market,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters. “It won’t just be a certain group of companies that are expected to report strong earnings, it will be most sectors of the market.”

Investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.

The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets.

Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small cap companies and is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.

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