Though escalation in U.S.-China trade tensions, emerging market meltdown and rounds of tech sell-off played spoilsport in the stock market, the Wall Street extended its largest bull run in the third quarter. In fact, the S&P 500 touched 2,900 for the first time in history on Aug 28 and the Dow Jones soared to its first record high on Sep 20 since late January.
The impressive performance was primarily driven by the dual tailwinds of solid corporate earnings and a booming economy. The rounds of upbeat data have bolstered confidence in the economy, leading to risk-on trade. This is especially true as America is witnessing the fastest pace of growth in nearly four years, with a nearly two-decade low unemployment rate of 3.9% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth.
Additionally, the Fed is on track for gradual rate hikes this year, citing that the economy is strong and can handle a tighter monetary policy. The central bank, which began to tighten monetary policy in 2015, has raised rates thrice this year and is expected to do so again in December. A rising rate scenario also signals a strengthening economy, which is spurring stock market growth.
That said, a few sectors easily crushed the market in the third quarter. Below we have highlighted four sectors ETFs that have gained in double digits and could be better plays in the months ahead, should the trends prevail.
ETFMG Alternative Harvest ETF (MJ – Free Report)
This cannabis-related ETF was on a tear in the third quarter amid the backdrop of more legalization of the plant for recreational use, which has paved the way for a merger mania, spurring a large number of deal activities in the industry.
As such, MJ emerged as the biggest winner in the third quarter, gaining 31.7%. This is the first and only ETF targeting the cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 40 securities in its basket with higher concentration on the top four firms. Canadian firms make up 60.5% of the portfolio, while American firms comprise just 21%. The ETF has AUM of $664.5 million and trades in a good volume of around 444,000 shares. It charges 75 basis points (bps) in annual fees.
