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After a challenging December, Wall Street continues to exhibit volatility at the start of 2025, representing an opportunity for investors to buy stocks and ETFs at a bargain. This comes amid concerns about the potential for slower interest rate cuts and renewed speculation over increased trade tariffs under President-elect Donald Trump.Dow Jones logged its worst monthly performance in more than two years, and the S&P 500 recorded its weakest performance since April. Moreover, all three major indices are on track for their second consecutive weekly decline.As such, we have highlighted five ETFs from different zones that have plunged the most over the past month but have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These products, namely, Invesco Dorsey Wright Industrials Momentum ETF ( – ) , iShares Expanded Tech-Software Sector ETF ( – ) , Global X U.S. Infrastructure Development ETF ( – ) , Vanguard Materials ETF ( – ) and SPDR S&P Bank ETF ( – ) , are poised to outperform in the coming weeks when the market resumes its uptrend.
Market Trends
While the enthusiasm surrounding AI, lower rates and hopes of growth under President-elect Trump’s administration are acting as catalysts for the stocks, increased geopolitical tensions, global growth slowdown concerns and uncertainty over Fed rate cuts led to risk-off trade. Foxconn boosted optimism for AI-fueled growth this week after announcing record fourth-quarter revenues and a strong sales forecast, propelling the chip stocks higher. Meanwhile, the latest bouts of data indicate a strong economy and increased inflation, dialing back expectations for Fed rate cuts this year. Currently, the Fed is looking for just two rate cuts this year after a 100-bps reduction in rates since September. Any pause in rate cuts will lead to a spike in yields. According to the CME FedWatch tool, the most likely outcome for 2025 is two more rate cuts, bringing the fed funds rate to a target range of 3.75% to 4.00%.U.S. services sector activity accelerated in December, and the measure of prices paid for inputs also rose to near a two-year high, indicating elevated inflation. Job openings grew to 8.098 million in November, exceeding forecasts for a 7.7 million rise and higher than October’s number of 7.839 million. U.S. manufacturing activity also showed signs of improvement in the final month of 2024. The Institute for Supply Management (ISM) said its manufacturing PMI increased to 49.3 last month, the highest reading since March, from 48.4 in November, as production rebounded and orders rose. While the incoming Trump administration’s policies, including tax cuts and easing business regulations, will boost economic growth, the policy of a crackdown on illegal immigration and tariffs could add to inflation, thereby limiting the ability of the Fed to cut rates. We have highlighted the ETFs in detail below:Invesco Dorsey Wright Industrials Momentum ETF (PRN) – Down 10.2%Invesco Dorsey Wright Industrials Momentum ETF provides exposure to 43 industrial companies showing relative strength (momentum) and follows the Dorsey Wright Industrials Technical Leaders Index. It is widely spread across construction & engineering, aerospace & defense, trading companies & distributors, and building products. Invesco Dorsey Wright Industrials Momentum ETF has accumulated $400.2 million in its asset base and charges 60 bps in annual fees. It trades in an average daily volume of 35,000 shares and has a Zacks ETF Rank #2.iShares Expanded Tech-Software Sector ETF (IGV) – Down 9.9%iShares Expanded Tech-Software Sector ETF provides exposure to software companies in the technology and communication services sectors by tracking the S&P North American Expanded Technology Software Index. The fund holds a basket of 122 securities. iShares Expanded Tech-Software Sector ETF is popular with AUM of $9.6 billion. Volume is good as it exchanges 5 million shares a day. The product charges 41 bps in annual fees and has a Zacks ETF Rank #2.Vanguard Materials ETF (VAW) – Down 9.1%Vanguard Materials ETF targets stocks in the materials sector. It follows the MSCI US Investable Market Materials 25/50 Index and holds 121 stocks in its basket. Specialty chemicals and industrial gases take the largest share at 24.5% and 20.2%, respectively. Vanguard Materials ETF has amassed $2.7 billion in its asset base and charges 10 bps in annual fees. Average daily volume is small at 50,000 shares. The product has a Zacks ETF Rank #1 Global X U.S. Infrastructure Development ETF (PAVE) – Down 9.1%Global X U.S. Infrastructure Development ETF seeks to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering and construction. It tracks the Indxx U.S. Infrastructure Development Index and holds 101 stocks in its basket. Global X U.S. Infrastructure Development ETF has AUM of $8.5 billion and trades in an average daily volume of 1.4 million shares. It charges 47 bps in annual fees and has Zacks ETF Rank #1.SPDR S&P Bank ETF (KBE) – Down 8.6%SPDR S&P Bank ETF offers equal-weight exposure to 95 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with a 70.9% share, while diversified banks, commercial & residential mortgage finance, diversified financial services and asset management & custody banks take the remainder. SPDR S&P Bank ETF has amassed $2.3 billion in its asset base while trading in a heavy volume of 2 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2.
