4 Sector ETFs & Stocks to Benefit Despite Cooling Inflation

The annual inflation rate in the United States rose for a third consecutive month to 2.9% in December 2024 from 2.7% in November, in line with market expectations. This year-end rise is partly driven by low base effects from last year, particularly for energy.

On a monthly basis, the CPI rose by 0.4%, the highest since March, and above forecasts of 0.3%. The index for energy rose 2.6%, accounting for over 40% of the monthly increase. Excluding the volatile food and energy categories, so-called core inflation declined to 3.2%, after remaining stuck at 3.3% for three consecutive months.

The deceleration in core price increases brings relief, alleviating concerns among economists and investors that inflation may have remained persistently above the Fed’s 2% target.

Against this backdrop, below we highlight a few sector exchange-traded funds (ETFs) that may gain in the near term.

Sector ETFs to Gain

Transportation – SPDR S&P Transportation ETF (XTN)

The transportation index jumped 0.5% sequentially in December and rose 7.3% year over year.

The fund XTN tracks the S&P Transportation Select Industry Index, which represents the transportation segment of the S&P Total Market Index. The fund has a Zacks Rank #3 (Hold).

As far as important stocks are concerned, Zacks Rank #3 FedEx FDX may be played. It is the leader in global express delivery services. The company provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

Energy – iShares U.S. Oil Equipment & Services ETF (IEZ)

Revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time, too, the rise in oil prices pushed up inflation. Oil prices have risen lately on various factors (read: Oil Prices Climb Amid Rising Geopolitical Tensions: ETFs to Win/Lose).

Although the energy commodities inflation fell 3.9% year over year, monthly inflation was 4.3% in December, followed by 0.5% inflation in November.

The underlying Dow Jones US Select Oil Equip & Serv Ind is a free-float adjusted market capitalization-weighted index. It measures the performance of oil equipment & services sector of U.S. equity market by including companies that are suppliers of equipment or services to oil fields & offshore platforms, such as drilling, exploration, engineering, logistics, seismic information services & platform construction.

As far as important energy stocks are concerned, Zacks Rank #3 Murphy USA MUSA appears to be a good bet. It is a leading independent retailer of motor fuel and convenience merchandise in the United States.

Real Estate – Real Estate Select Sector SPDR ETF (XLRE)

Weighted shelter makes up 32.77% of CPI, of which 7.8% is rent, and 23.68% is private housing, per data from MacroMicro. The shelter index jumped 0.3% in December. Costs increased 4.6% annually.

The underlying Real Estate Select Sector Index includes securities of companies from the following industries real estate management and development and REITs, excluding mortgage REITs. The fund yields 3.49% annually and charges 9 bps in fees.

Meanwhile, Alpine Income Property Trust PINE, has a Zacks Rank #1 (Strong Buy). It is a real estate investment trust. It owns and operates a portfolio of single-tenant net lease commercial properties. Alpine Income Property Trust Inc. is based in Daytona Beach, United States.

Healthcare – Health Care Select Sector SPDR ETF (XLV)

The index for Medical care services rose 0.2% sequentially in December. The index has advanced 3.4% annually. Medical care commodities inflation was flat in December, while the index rose 0.5% annually. The Medical care services index showed a downtrend in December, while the Medical care commodities index registered a monthly uptrend.

The underlying Health Care Select Sector Index of the ETF XLV includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology.

Tenet Healthcare THC, which has a Zacks Rank #3 deserves a mention. It is an investor-owned health care services company, which owns and operates general hospitals and related health care facilities for urban and rural communities in numerous states, and has offices in California and Florida.

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