The coronavirus pandemic’s impact on the U.S. markets may more transient when compared to previous recessions, but that does not mean that the various market segments and sector exchange traded funds will behave in a uniform manner.
According to Refinitiv data, companies in the MSCI United States index are expected to post annualized profit growth of 12% in the next five years, or double the rate in the past five, Reuters reports. Additionally, analysts have not cut five-year growth forecasts in any month this year.
“The current consensus expectation is that earnings will recover sharply from 2021 onwards and that the coronavirus impact will be limited to 2020,” Alain Bokobz, head of global asset allocation at Societe Generale, said in a report. “In the previous two recessions, the U.S. equity market took around three years to reclaim pre-crisis earnings peak.”
Meanwhile, U.S. markets have made a quick rebound, surging 40% since the March lows, as both massive fiscal and monetary stimulus measures helped fuel the rally.
Looking ahead, Bokobz projected that double-digit earnings growth is required for U.S. stocks to generate a 7% total return for the next five years.
However, the growth will not be even with some sectors standing out more than others.
“For sectors like consumer staples and technology, the recovery will be much shorter than the 2008 recession. The reason we may see a swift economic recovery is due to pent-up demand from consumers who have been holed up in their homes for a number of months and have limited spending,” said Matta Fox, founder and wealth adviser at Ithaca Wealth Management. “For sectors like energy and basic materials, the recovery may take longer.”
ETF investors can also capture faster growth opportunities through sector-specific plays. For example, Vanguard Consumer Staples Index Fund ETF Shares (VDC), Fidelity MSCI Consumer Staples Index ETF (FSTA) and Consumer Staples Select Sector SPDR Fund (NYSEArca: XLP) provide broad exposure to the consumer staples sector. Additionally, the Technology Select Sector SPDR ETF (NYSEArca: XLK), Fidelity MSCI Information Technology Index ETF (FTEC) and Vanguard Information Technology ETF (NYSEArca: VGT) provide access to the tech segment.
For more information on market sectors, visit our sector ETFs category.