Voya Financial (VOYA) Q3 Earnings and Revenues Top Estimates

Wall Street has been upbeat in the first half of 2023 despite a few occasional hiccups, mainly due to a less-hawkish Fed, better-than-expected corporate earnings and the AI mania. The S&P 500 touched an extraordinary landmark in June as it finished more than 20% above its October lows, signifying the start of a new bull market. The rise placed the S&P 500 at its loftiest point since August 2022.

No doubt, the year has had its share of challenges in the form of regional banking crises and persistent fears of an impending recession, which is yet to be seen. Still, stock market tailwinds took an upper hand over the headwinds. Recessionary fears have also been easing.

Against this backdrop, let’s explore what we could see ahead and how to play the second half with ETFs.

ETF Strategies for 2H23

Sticky Inflation to Remain

Despite showing signs of easing, sticky inflation will be a concern in the second half of 2023, which can keep central banks busy with rate hikes. To add exposure to inflation-sensitive assets, investors could consider the Amplify Inflation Fighter ETF IWIN and First Trust Bloomberg Inflation Sensitive Equity ETF FTIF.

Don’t Fear Small Fed Rate Hikes: Play Cyclical Stocks

The equity strategy team at Bank of America Global Research, led by Savita Subramanian, commented on the return to the bull territory. It was suggested that this upward trend could reignite investor interest in equities. Cyclical stocks should gain.

Ebbing chances of U.S. recession is a plus for investors. The Fed boosted its 2023 economic growth expectations to 1% GDP gain, up from the 0.4% estimate in March. Consumer sentiment is decent. Upbeat retail sales give cues of consumers’ decent savings. The jobs market is also strong. Consumer Discretionary Select Sector SPDR ETF (XLY) is a great bet here.

Hedge Any Rate Hike With These ETFs

The Fed is expected to hike interest rates again. The median expectation for funds rates now stands at 5.6% funds rate by the end of 2023. This implies two more quarter-point hikes in the remaining meetings this year. Three officials see rates rising closer to 6%. The next Fed meeting at the end of July means a lot to investors. About an 80% chance of a rate hike in July is currently priced in.  Simplify Interest Rate Hedge ETF PFIX, Advocate Rising Rate Hedge ETF RRH and iShares Floating Rate Bond ETF FLOT are three intriguing picks in this context.

High-Dividend ETFs to Gather Steam?

Dividend ETFs, which provide investors with a regular stream of current income, underperformed growth stocks in the first half. But dividends may regain luster in the second half as Fed rate hike talks are back on the table. ETFs like Vanguard High Dividend Yield ETF VYM offers good yields of about 3.18% annually. The high-dividend stocks also enjoy the valuation advantage at the current level.

Semiconductor: An Interesting Bet in Tech Pack?

High demand for chips needed to create AI systems and increased usage of chips in automobiles should continue to benefit semiconductor makers. Data centers will also require more chips to handle AI workloads.

So, if you believe that the massive AI rally could be over anytime, better to bet on more value-centric AI beneficiaries like semiconductors to stay tuned with the continuing AI journey. iShares Semiconductor ETF SOXX has a Zacks Rank #1 (Strong Buy).

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iShares Semiconductor ETF (SOXX): ETF Research Reports

Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

Vanguard High Dividend Yield ETF (VYM): ETF Research Reports

iShares Floating Rate Bond ETF (FLOT): ETF Research Reports

Simplify Interest Rate Hedge ETF (PFIX): ETF Research Reports

Advocate Rising Rate Hedge ETF (RRH): ETF Research Reports

Amplify Inflation Fighter ETF (IWIN): ETF Research Reports

First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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