VFH - Barclays favors cyclicals amid U.S. debt ceiling debate

2023-05-03 07:52:46 ET

Amid worries about a U.S. default as debate rages in Washington about the federal debt ceiling, Barclays argued that investors should head towards cyclicals such as industrials, metals, materials and financials.

"Despite default being highly unlikely, equities cannot ignore the risk of a costly resolution to a debt-ceiling impasse," Barclays' global equity and derivative strategy team stated in a note to its clients on Wednesday. "Equity vol remains muted, as it did leading up to the x-date in 2011...until it didn’t."

The firm added: "We believe downside protection on cyclicals offer among the best bang-for-the-buck, at current costs."

Default risk has come into investor consciousness as lawmakers jockey ahead of the debt ceiling deadline. U.S. Secretary of Treasury Janet Yellen warned that the U.S. could hit the debt ceiling by as early as June 1st.

For investors that share a similar viewpoint as Barclays, here is a list of popular ETFs tied to sectors such as industrials, metals, materials and financials:

• Industrial Select Sector SPDR Fund ETF ( NYSEARCA: XLI )
• Vanguard Industrials Index Fund ETF ( VIS )
• Materials Select Sector SPDR Fund ETF ( NYSEARCA: XLB )
• Vanguard Materials Index Fund ETF ( VAW )
• Financial Select Sector SPDR Fund ETF ( NYSEARCA: XLF )
• Vanguard Financials Index Fund ETF ( VFH )

In broader financial news, major market averages look to open up in the green as they await the Federal Reserve’s rate decision later this afternoon.

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