Concerns over trillion-dollar budget deficits, rising rates and inflationary pressures officially pushed the S&P 500 and the Dow Jones in the correction zone. These led the 30-year Treasury yield to highest level since March.
Why the Selloff?
The U.S. Senate signed a bipartisan deal on Feb 7 that would raise spending limits by $300 billion over the next two years. The conciliation, along with Republican tax cuts, could push up the federal budget deficit to $1.07 trillion in fiscal 2019, as per Bank of America estimates.
Wall Street believes that that more government spending will lead “the Treasury Department to borrow more money by selling additional bonds’. To stimulate demand for that higher supplies, increased rate will follow.
Markets in Correction
The S&P 500 is now in the correction territory for the first time in two years, down more than 10% from its record reached in January. The Dow Jones Industrial Average is on track for its worst weekly percentage drop since the crisis. The index lost over 1,000 points on Feb 8, marking the second-worst point decline in history. The 10-year Treasury yield is hovering around the four-year high and was closed at 2.85% on Feb 8.
Is Value Prevailing?
Amid such doldrums, activist Carl Icahn recently said that the fundamentals of U.S. companies are pretty strong and he continues to see great valuea in the market. Adding to the optimism, Chicago Fed President Charles Evans indicated that though inflation pressures are strengthening, higher rates should be delayed until mid-year. Dallas Fed President Robert Kaplan sees “the recent turbulence in the stock market as ‘healthy’ and suggested that it wouldn’t have an impact on the broader economy.”
In any case, there was no new headwind in the market. It now seems that the amazing U.S. stock rally that started with Trump’s win (barring some occasional selloffs) finally hit a halt mainly on overvaluation concerns.
Try ETFs & Stocks With Lower P/E than S&P 500
Against this backdrop, investors can take a look at the ETFs and stocks that have a lower P/E than that of S&P 500 ETF (SPY – Free Report) , which is 18.67x. Below-mentioned funds and stocks saw a better market performance than the S&P 500 and the Dow Jones this month.
WBI Power Factor High Dividend ETF (WBIY – Free Report) – P/E 12.02
The fund tracks the performance of 50 U.S.-listed stocks among large, mid and small-caps, which exhibit high dividend yield and strong fundamentals. It yields about 3.66% annually (as of Feb 8, 2017).
Legg Mason International Low Volatility High Dividend ETF (LVHI – Free Report) – P/E 14.01
The underlying index of the fund provides stable income through investments in stocks of profitable companies in emerging markets with relatively high dividend yields or anticipated dividend yields & lower price & earnings volatility, while mitigating exposure to exchange-rate fluctuations between the U.S. dollar & currencies in which the component securities are denominated. The fund yields about 3.62% annually (read: Must-Follow ETF Moves as Finally Selloffs Set In).
First Trust STOXX European Select Dividend Index Fund (FDD – Free Report) – P/E 14.50
The underlying index of the fund, the STOXX Europe Select Dividend 30 Index, consists of 30 high dividend-yielding securities selected from the STOXX Europe 600 Index. It yields 2.74% annually (read: 4 High-Dividend ETFs & Stocks Under $17).
Buckle Inc. (BKE – Free Report) – P/E 12.28x; Value Score A
It is a leading retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women. This Zacks Rank #1 (Strong Buy) stock belongs to a top-rated Zacks industry (top 17%).
Enova International Inc. (ENVA – Free Report) – P/E 13.41x, Value Score A
The Zacks Rank #2 (Buy) company is a provider of online financial services. The stock belongs to a top-rated Zacks industry (top 12%).
Hibbett Sports Inc. (HIBB – Free Report) – P/E 6.19x; Value Score A
Hibbett Sports, a Zacks Rank #1 stock, operates sporting goods stores in small and mid-sized markets, predominantly in the South, Southwest, Mid-Atlantic and Midwest. The company represents a top-rated Zacks industry (top 9%).
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