Back to top

Image: Bigstock

How to Play Dow's Best-Ever Gains With ETFs

Read MoreHide Full Article

On Dec 26, the Dow Jones Industrial Average registered its best one-day point gain in history. The Dow added about 1,086.25 points on that day, marking 4.98% gains. The gauge now sits at 22, 878.45. This year has been extremely volatile for the index with 7.84% loss.

Let’s see what drove the Boxing Day gain.

Oil’s Recent Gains

Oil ETFs United States Oil (USO - Free Report) and United States Brent Oil (BNO - Free Report) gained about 6.6% each on positive comments from the Russian Energy Minister Alexander Novak about the stability in the oil patch in the first six months of 2019. He sees higher oil prices early next year due to fresh output cut. Energy shares led a rally on price jump and Vanguard Energy ETF (VDE - Free Report) added about 6.4%.

It has been noticed lately that Dow Jones shares a deep relationship with oil price movement. Though the latest 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 (read: Oil Sees Strong Start to 2018 in 4 Years: ETFs to Play).

Rally Retail Shares

There was a superb rally in retail shares as holiday shopping season has emergedas the best in six years. Total U.S. retail sales, excluding automobiles, rose 5.1% year over year between Nov 1 and Dec 24, according to Mastercard SpendingPulse, which tracks both online and in-store spending with all forms of payment. As a result, the index shot up on economic euphoria. VanEck Vectors Retail ETF (RTH - Free Report) added 5.8% on Dec 26(read: Holiday Sales Strongest in Six Years: ETFs Set to Surge).

Cheaper Valuation

Since the start of the fourth quarter, Wall Street has been on a tumultuous ride. Renewed global growth worries, no definite solution to U.S.-China trade tensions, constant volatility in the oil patch and a flattening yield curve in the United States which invoked recessionary fears at times weighed on the market (read: Not Sure About 2018 Santa Rally? Buy 5 Low P/E Momentum ETFs).

Amid such market doldrums, Dow Jones suffered its worst week since the global financial crisis of 2008, tumbling about 6.9% in the Dec 17-21 timeframe. So, many investors decided to dig into the weaker valuation.

ETFs in Focus

Though we are not sure how long the rally will continue, investors intending a momentum play, can bet on DIA, Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) (up 4.0% on Dec 26) and iShares Dow Jones US ETF (IYY - Free Report) (up 5.03%).

Investors can also settle for leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) (up 9.7% on Dec 26) and ProShares UltraPro Dow30 (UDOW - Free Report) (up 14.4% on Dec 26)are a couple of choices.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in