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5 ETF Predictions for Q3 of 2023

Wall Street had an awesome first half of 2023 after the S&P 500’s worst year in 2022 since 2008. The S&P 500, the Dow Jones and the Nasdaq Composite were up 15.9%, 3.8% and 31.7% in the first half, with the Nasdaq experiencing the best first half in 40 years. Ashigh inflation continues to be a concern, the Federal Reserve will likely hike rates further after just one pause in the June meeting. Tech shares were the showstopper of the market rally in 2023. Naturally, investors are wondering what awaits. For them, we have jotted down a few predictions for the second half of 2023.

Inflation Will Cool Down But Likely Remain Stubborn After hitting multi-year highs, inflation rates started showing signs of cooling down in late 2022. The Personal Consumption Expenditures (PCE) index advanced 3.8% versus April's 4.3%, and excluding volatile food and energy, the core PCE index gained 0.3%, down from 0.4% in the previous month. But the rates are far higher than the Fed’s target of 2.0%. We do not expect inflation to slip to the 2.0% range in 2023. Amplify Inflation Fighter ETF IWIN should thus be watched for gains as long as inflation remains stubborn (read: Another Inflation-Sensitive ETF (FTIF) Hits the Market).

Recessionary Fears Seem Exaggerated While the bond market predicts a recession, as indicated by the flattening of the yield curve, the U.S. GDP growth rate seems decent. The U.S. economy grew an annualized 2% sequentially in Q1 of 2023, way higher than the second estimate of 1.3%, and forecasts of 1.4%, per tradingecnomics. The Fed, too, 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. This makes the case perfect for consumer discretionary ETF investing. Vanguard Consumer Discretionary ETF VCR is a good pick here.

Corporate Earnings to Remain Steady First-quarter corporate earnings came in better than expected. Earnings estimates for Q2 have come down only a bit since the start of April, with several sectors starting to see positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical and Retail. WisdomTree U.S. LargeCap ETF EPS should thus be in focus. It is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market.

Value Stocks Continue to Pull the Strings As rates hover around solid levels, value stocks will likely prevail in the second part of 2023. High-flying growth companies often focus on increasing future revenues and reinvesting their earnings into product research and expansion. Hence, they often fail to focus on shareholder value maximization. Moreover, these companies often rely more on loans and are thus more susceptible than value stocks to rising rates. SPDR Portfolio S&P 500 Value ETF SPYV currently has a Zacks Rank #1 (Strong Buy).

Eurozone Likely to Outperform the United StatesVanguard FTSE Europe ETF VGK has gained 11.3% this year against a 14.5% increment in the S&P 500, while iShares MSCI Eurozone ETF EZU is up more than 16%. With the U.S. and U.K. rates being higher than the Eurozone, we expect the winning momentum in Eurozone ETFs to top that of the S&P 500 and the United Kingdom. Source: 5 ETF Predictions for Q3 of 2023


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