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Dow Springs Back: More Upside for ETFs?

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After languishing for a few trading days on Turkey-induced threats, U.S. stocks bounced back on Aug 16, with the “Dow Jones having its best day in four months.” A host of factors made this recoil possible as the blue-chip index has recorded a downbeat performance this year among the key U.S. equity indices.

Dow Jones Industrial Average is up about 3% this year (as of Aug 16) while the S&P 500 has gained more than 5% and the Nasdaq Composite has added about 11.4%. The index has now been in the longest spell in correction territory — “132 trading sessions (as of Thursday’s close) — since the 223 sessions in 1961, according to Dow Jones Market Data”, as quoted on MarketWatch.

Let’s take a look what caused SPDR Dow Jones Industrial Average ETF (DIA - Free Report) add about 1.7% on Aug 16, leaving its two other counterparts behind.SPDR S&P 500 ETF (SPY - Free Report) has gained more than 0.8%, while Invesco QQQ Trust (QQQ - Free Report) advanced about 0.3% on that day.

Strong Corporate Earnings

There was a flurry of solid corporate earnings and news from the Dow component. Walmart Inc. (WMT - Free Report) shares gained over 9% after earnings and revenues beat expectations helped by 40% U.S. e-commerce sales growth. There was more footfall in the second quarter and shoppers spent more per trip, per CNBC. Same-store sales growth also breezed past expectations.

Plus, The Boeing Company (BA - Free Report) shares jumped 4.3% on Aug 16, after Swiss bank UBS raised its 12-month target price (to $515) by more than 50% from their current level. Cisco Systems Inc. (CSCO - Free Report) shares too gained about 3% on the day as the networking giant topped estimates on both revenues and earnings and provided an upbeat outlook, after the closing bell on Wednesday (read: ETFs to Soar on Robust Cisco Results).

U.S.-China to Recommence Trade Negotiation

The reason for which the Dow Jones took a beating this year was the trade truce between the United States and China. There is news that the United States and China are ready to restart trade talks or negotiations next week to prevent a full-blown trade war, “the first such meeting since July (read: 5 Sector ETFs Most Exposed to Trade Tensions).”

Oil’s Gains

Furthermore, it has been noticed lately that Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally has spread optimism in the broader market as a whole, in most cases, on a particular day of oil surge, the spurt in the Dow Jones is steeper than that of the S&P 500 or vice versa. And oil prices have been on an uptrend this year. WTI fund United States Oil (USO - Free Report) added about 10.5%, while United States Brent Oil (BNO - Free Report) has advanced about 10.5% this year (as of Aug 16, 2018).

How Long Will the Rebound in Dow Last?

If there are positive developments related to Washington-Beijing trade deal in the coming days and in the oil price thanks to Trump’s re-imposition of sanctions on Iran, the Dow could surge higher (read: ETFs & Stocks in Focus as Trump Reimposes Sanction on Iran).

ETFs in Focus

So, investors intending a momentum play, can bet on DIA, Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones US ETF (IYY - Free Report) . Investors can also settle on leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.

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