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Has Santa Claus Rally Set In? 5 Best ETF Areas to Explore
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Santa Claus seems to have landed on Wall Street as the key equity indexes jumped last week. Thanks to the Federal Reserve's dovish stance and tone, U.S. stocks had an amazing week, as they closed their longest winning streak since 2017. What does this mean? Are markets primed for a Santa Rally sooner than expected this year?
What is Santa Rally?
The Santa Claus Rally refers to the jump in stock prices in the week between Christmas and New Year's Day. There are several factors behind this surge, including “tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week,” as per Investopedia.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Are We Primed for a Super-Strong Santa Rally This Year?
With just a handful of days remaining for Christmas and sentiments still strong (in fact, a renewed optimism is playing a key role in pushing Wall Street higher thanks to a less-hawkish Fed), it looks like such a solid urge is going to continue.
Wall Street's upbeat outlook on interest rate cuts is encouraging brokers to make more optimistic calls on stocks, too. Goldman Sachs now sees the S&P 500 closing out 2024 at 5,100, as quoted on Yahoo Finance. The broker house’s initial outlook was a level of 4,700 by 2024-end.
The financial markets celebrated the Federal Reserve's change in its outlook last week. The central bank hinted at a higher number of anticipated rate cuts (by about 75 bps) in 2024 than previously predicted and acknowledged the effectiveness of its anti-inflation campaign (read: Sector ETFs to Gain as Fed Stays Put, Sees Deeper Rate Cuts in 2024).
"Above-consensus retail sales growth further evidenced economic resilience, while lower-than-expected jobless claims affirmed that the labor market remains healthy," Goldman Sachs' equity strategy team led by David Kostin wrote in a research note over the weekend, as quoted on Yahoo Finance.
Against this backdrop, we have highlighted a few ETFs set to gain from Santa Rally 2023.
Real Estate
ETFs on the U.S. real estate sector have been surging lately on cues of low rates. The reliance of real estate investment trusts (REITs) on debt financing makes them appealing to investors during periods of interest rate cuts, as these companies gain from reduced borrowing expenses. Plus, the low-interest rate scenario leads to increased valuations. Furthermore, the attractive dividend yields offered by REITs become more enticing to investors compared to the returns from fixed-income and money market accounts in such times.
Real Estate Select Sector SPDR ETF (XLRE - Free Report) – The Real Estate Select Sector Index includes securities of companies from the following industries real estate management and development and REITs, excluding mortgage REITs. XLRE yields 3.32% annually. The fund has a Zacks Rank #2 (Buy).
Cash Cows
When analyzing a business, it is often said that ‘cash is king.’ Hence, some investors like to focus on companies that generate excess cash flows. Such companies have the leeway to protect themselves from uncertainties.
Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report) – The Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to the top 100 small-cap U.S. companies with the highest free cash flow yield. Small caps are also good bets to tap the January Effect.
Nasdaq 100
With rates likely to fall in 2024 and the technology sector undergoing a wave of innovations, we expect the tech-heavy index to continue to fare better in the near term.
Invesco QQQ (QQQ - Free Report) – The underlying Nasdaq-100 Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
Low P/E Momentum ETFs
We suggest dipping toes into the momentum ETFs with a relatively low P/E. Momentum investing is an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks that are sizzling on the market.
Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) – The underlying S&P 600 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell 2000 Index. XSVM has a P/E of 7.01X versus the S&P 500’s P/E of 17.86X.
Low-Volatility High-Dividend
Uneven global growth momentum and U.S. economic growth slowdown might put high-risk securities on the edge occasionally next year. This would keep bond yields at lower levels. In such a scenario, a low treasury yield would encourage investors to rush to dividend destinations. Hence, dividend, along with the low-volatility volatility trait, is a winning bet right now.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) – The underlying S&P 500 Low Volatility High Dividend Index comprises 50 securities traded on the S&P 500 Index that have historically provided high dividend yields and low volatility. The ETF yields 4.45% annually.
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Has Santa Claus Rally Set In? 5 Best ETF Areas to Explore
Santa Claus seems to have landed on Wall Street as the key equity indexes jumped last week. Thanks to the Federal Reserve's dovish stance and tone, U.S. stocks had an amazing week, as they closed their longest winning streak since 2017. What does this mean? Are markets primed for a Santa Rally sooner than expected this year?
What is Santa Rally?
The Santa Claus Rally refers to the jump in stock prices in the week between Christmas and New Year's Day. There are several factors behind this surge, including “tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week,” as per Investopedia.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Are We Primed for a Super-Strong Santa Rally This Year?
With just a handful of days remaining for Christmas and sentiments still strong (in fact, a renewed optimism is playing a key role in pushing Wall Street higher thanks to a less-hawkish Fed), it looks like such a solid urge is going to continue.
Wall Street's upbeat outlook on interest rate cuts is encouraging brokers to make more optimistic calls on stocks, too. Goldman Sachs now sees the S&P 500 closing out 2024 at 5,100, as quoted on Yahoo Finance. The broker house’s initial outlook was a level of 4,700 by 2024-end.
The financial markets celebrated the Federal Reserve's change in its outlook last week. The central bank hinted at a higher number of anticipated rate cuts (by about 75 bps) in 2024 than previously predicted and acknowledged the effectiveness of its anti-inflation campaign (read: Sector ETFs to Gain as Fed Stays Put, Sees Deeper Rate Cuts in 2024).
"Above-consensus retail sales growth further evidenced economic resilience, while lower-than-expected jobless claims affirmed that the labor market remains healthy," Goldman Sachs' equity strategy team led by David Kostin wrote in a research note over the weekend, as quoted on Yahoo Finance.
Against this backdrop, we have highlighted a few ETFs set to gain from Santa Rally 2023.
Real Estate
ETFs on the U.S. real estate sector have been surging lately on cues of low rates. The reliance of real estate investment trusts (REITs) on debt financing makes them appealing to investors during periods of interest rate cuts, as these companies gain from reduced borrowing expenses. Plus, the low-interest rate scenario leads to increased valuations. Furthermore, the attractive dividend yields offered by REITs become more enticing to investors compared to the returns from fixed-income and money market accounts in such times.
Real Estate Select Sector SPDR ETF (XLRE - Free Report) – The Real Estate Select Sector Index includes securities of companies from the following industries real estate management and development and REITs, excluding mortgage REITs. XLRE yields 3.32% annually. The fund has a Zacks Rank #2 (Buy).
Cash Cows
When analyzing a business, it is often said that ‘cash is king.’ Hence, some investors like to focus on companies that generate excess cash flows. Such companies have the leeway to protect themselves from uncertainties.
Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report) – The Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to the top 100 small-cap U.S. companies with the highest free cash flow yield. Small caps are also good bets to tap the January Effect.
Nasdaq 100
With rates likely to fall in 2024 and the technology sector undergoing a wave of innovations, we expect the tech-heavy index to continue to fare better in the near term.
Invesco QQQ (QQQ - Free Report) – The underlying Nasdaq-100 Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
Low P/E Momentum ETFs
We suggest dipping toes into the momentum ETFs with a relatively low P/E. Momentum investing is an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks that are sizzling on the market.
Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) – The underlying S&P 600 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell 2000 Index. XSVM has a P/E of 7.01X versus the S&P 500’s P/E of 17.86X.
Low-Volatility High-Dividend
Uneven global growth momentum and U.S. economic growth slowdown might put high-risk securities on the edge occasionally next year. This would keep bond yields at lower levels. In such a scenario, a low treasury yield would encourage investors to rush to dividend destinations. Hence, dividend, along with the low-volatility volatility trait, is a winning bet right now.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) – The underlying S&P 500 Low Volatility High Dividend Index comprises 50 securities traded on the S&P 500 Index that have historically provided high dividend yields and low volatility. The ETF yields 4.45% annually.