Look to Banks, Consumer Discretionary ETFs as the Economy Recovers

Bargain hunters who are looking for some of the worst-hit areas of the market may consider bank and consumer discretionary sector-related exchange traded funds to capture the bounce back.

Morgan Stanley’s chief U.S. equity strategist, Mike Wilson, argued that investors should consider sectors that have been “completely eviscerated” as the U.S. economy recovers from the coronavirus pandemic, CNBC reports.

“We’re bullish overall, and we just think there’s more upside in potentially some of the laggard areas,” Wilson told CNBC.

“That’s not saying anything bad about Google or the large cap growth stocks. They’re wonderful companies. They’re wonderful business models, but they just don’t have the upside potential that some of these other laggard areas do,” he added.

Wilson specifically highlighted bank and consumer discretionary stocks as potential areas that could offer investors more gains. Recent performers that stood out have also been those that were previously hardest hit by the coronavirus-driven fallout in the markets.

“Whenever you have a recession, you should be looking for a leadership change. That’s just the way it works,” Wilson said.

While there are bargain picks and value plays to be had following the market rout, Wilson warns of potential traps, such as the energy sector, especially given what’s been going on in the commodities market and the depressed crude oil prices.

As investors look for potential opportunities, it could be good time to consider bank sector-specific ETFs, such as the Invesco KBW Bank ETF (NASDAQ: KBWB), SPDR S&P Bank ETF (NYSEArca: KBE), Invesco KBW Regional Bank Portfolio (NYSEArca: KBWR), iShares U.S. Regional Banks ETF (NYSEArca: IAT) and SPDR S&P Regional Banking ETF (NYSEArca: KRE).

Investors who believe that the rebound could translate to improved sentiment and consumer sales can look to sector-related ETFs. For example, one can turn to broad consumer discretionary exposure through something like the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), Vanguard Consumer Discretionary (NYSEArca: VCR) and Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS).

For more information on the market sectors, visit our sector ETFs category.