Diagnosing the Market on Health Day: 6 ETFs Looking Healthy

The U.S. stock market suffered its worst week since the COVID pandemic, weighed down by President Trump's announcement of sweeping tariffs on U.S. trading partners and subsequent retaliatory measures, which have increased the likelihood of an extended trade war and damage to the global economy.

The S&P 500 tumbled 10.5% in the final two days of the last week, while the Dow Jones shed nearly 4,000 points. With this massive decline, the S&P 500 shed more than $5 trillion in market value last week and moved closer to joining the tech-heavy Nasdaq Composite Index and the small-cap Russell 2000 index in a bear market, meaning a 20% correction from the latest peak. The Dow Jones dropped almost 8% last week and entered into correction territory (read: Inside Trump Tariffs and Their Impact on Sector ETFs).

Following this rout, let us examine the health of the U.S. stock market this World Health Day and bring to investors’ attention some attractive entry levels and solid picks for a robust investment portfolio. Similar to the six vital nutrients required for good health, the success story of the stock market depends hugely on six sectors. Here, we have picked those six essential market nutrients and then highlighted one ETF each from these sectors.

Vitamins: Consumer Sector

Growth in America has stalled, as depicted by the latest round of data. U.S. factory activity contracted in March for the first time this year, and prices accelerated sharply for the second month as sentiment among manufacturers has been shaken by the Trump administration’s uneven rollout of tariffs. 

Trump’s dramatic tariff increase has shifted the analysts' outlook from solid growth to recession risk in a matter of days. The risk of the global economy falling into a recession has increased from 40% to 60%, according to JP Morgan, while Goldman Sachs increased the odds of a U.S. recession to 45% from 35% in the next 12 months (read: Q1 to See Economic Contraction? ETFs Likely to Win). 

U.S. consumer confidence dropped for the fourth straight month in March, with households currently the most pessimistic about the future of income, business, and labor market conditions in 12 years. The unemployment rate also ticked up from 4.1% to 4.2% last month. 

However, the labor market is still in solid shape amid trade war fears, as U.S. employers added a surprising 228,000 jobs last month. As such, the beaten-down prices have made the stocks in the consumer sector attractive going into the spring selling season and that will provide the economy its regular dose of vitamins. Within this sector, ,Consumer Discretionary Select Sector SPDR Fund, XLY, which offers exposure to the broad consumer discretionary space, is a great pick for investors. It is the largest and most popular product in this space, with AUM of $20.3 billion and an expense ratio of 0.09%. XLY has a Zacks ETF Rank #3 (Hold).

Proteins: Financial Sector

Like protein, the financial sector helps in carrying out a huge array of functions through its banks and financial institutions. The sector facilitates growth in every part of the country. The stocks in this sector are falling as the economic slowdown will hurt loan growth, credit costs, investment banking fees, trading profitability and asset management fees. Higher chances of a recession can lead to a Fed rate cut much faster than the market’s expectations, resulting in net interest margin contraction for most banks.

Amid the feeble macroeconomic backdrop, ,iShares U.S. Insurance ETF, IAK has emerged as an outperformer, gaining about 8.5% so far this year. It offers exposure to 54 U.S. companies that provide life, property and casualty, and full-line insurance by tracking the Dow Jones U.S. Select Insurance Index. iShares U.S. Insurance ETF has amassed $795.8 million in its asset base and charges 39 bps in annual fees. It has a Zacks ETF Rank #3. 

Minerals: Medical Sector

Just like minerals are important for bone structure, healthcare is crucial to the economy. In fact, it is the backbone of an economy. Healthcare is one of the largest and fastest-growing sectors, driven by an aging population, a growing middle class and insatiable demand for new treatments and drugs for various illnesses. About 10% of economic growth comes from this sector.

Further, the sector acts as a defensive play and generally outperforms during periods of low growth and high uncertainty. ,iShares U.S. Healthcare Providers ETF ,IHF remains strong amid the market turmoil, having gained 12% this year. It follows the Dow Jones U.S. Select Healthcare Providers Index, with exposure to 67 companies that provide health insurance, diagnostics and specialized treatment. It has amassed $671.4 million in its asset base and charges 40 bps in annual fees. IHF has a Zacks ETF Rank #3 (read: 5 ETFs Withstanding the Biggest Market Drop Since 2020).

Carbohydrates: Technology Sector

Similar to carbs that provide energy to the muscles and brain, the technology sector powers the economy with its wide range of products and services, including electronics, software, computers and social media. The sector has been severely impacted by Trump’s aggressive tariff plan. The so-called Magnificent Seven stocks lost a combined $1.8 trillion in market value over the last two trading sessions, with Apple (AAPL) leading the way, shaving off more than $533 billion in market cap. 

However, beaten-down prices seem to be an attractive entry point, given the global AI boom and bets over rapid Fed cuts. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. That being said, ,Select Sector SPDR Technology ETF, XLK, with a Zacks Rank #1 and AUM of $65 billion, seems a good pick. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF charges 9 bps in fees per year from investors and is down 16% this year. It has a Zacks ETF Rank #1 (Strong Buy).

Fats: Construction Sector

The construction sector — accounting for 5.5% of GDP — provides energy backup to the economy. This is because construction activity picks up when the economy strengthens. The sector is struggling with higher raw material prices as well as labor and lot shortages. Builders are feeling less confident about the housing and construction market amid economic uncertainty, the threat of tariffs and high housing costs. However, mortgage rates dropped to 6.6% for the four weeks ending March 30, which could be good news for the housing market as the historically busy spring season kicks off.

iShares U.S. Home Construction ETF, ITB, which has plunged 11.6% this year, seems to emerge strongly when good tidings started to set in. It provides exposure to 48 U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $2.5 billion, iShares U.S. Home Construction ETF charges 39 bps in annual fees (read: Where's the Housing Market Heading? ETFs to Consider).

Water: Transport Sector

Transport enables the smooth movement of freight and passengers through different modes such as rail, trucks, ships and air. It occupies an important place in the world market and is often considered a barometer of overall economic health. The sector is currently suffering as tariff woes spark fears of a tourist slowdown. The tariffs on automobiles have raised new-car prices and perhaps reduced new-car supply.

iShares U.S. Transportation ETF, IYT offers exposure to U.S. airline, railroad, and trucking companies by tracking the S&P Transportation Select Industry FMC Capped Index. Holding 45 stocks in its basket, it charges 39 bps in annual fees and has $600.9 million in AUM. IYT has a Zacks ETF Rank #3.

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research