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ETF Strategies to Play Market Optimism Amid Coronavirus Crisis
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The broader S&P 500 index hit a record high on Aug 18 since the coronavirus selloff in late-March. The index was near its Feb 19 all-time closing high of 3,386.15 for more than a week before hitting a record close of 3,389.78 and an intraday all-time high of 3,395.06 on Aug 18. The broader S&P 500 has so far gained more than 54% since it touched the lows in March.
Major technology companies’ resilience to the coronavirus crisis is heavily supporting the market momentum. In this regard, Facebook (FB) has surged more than 27% year to date, Alphabet (GOOGL) has gained more than 16% and Amazon (AMZN) has rallied more than 79% with Netflix (NFLX) adding 52% in the same period. Apple (AAPL) and Microsoft (MSFT) have also surged around 34.1% and 57.4%, respectively, so far in the year.
The second half of 2020 is expected to keep facing the brunt of the pandemic as the second wave of the outbreak is gathering steam. In the current scenario, the rising work-from-home and online shopping trends, increasing digital payments, growing video streaming and soaring video game sales are slowly becoming the “new normal.” With the new trends making way, these major technology stocks are expected to continue to gain on rising demand for their products and services.
Factors Buoying Optimism
Notably, the S&P 500 index rally is largely reflective of investor optimism and improving U.S. economic fundamentals. Overall, the second-quarter earnings season has impressed investors as companies could fight the pandemic and deliver better results than feared by market participants.
The improving manufacturing numbers have instilled optimism among investors. The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and market expectations of 53.6. That is the highest reading since March 2019 as manufacturing activity is recovering after the pandemic-induced turbulence. A reading above 50 indicates expansion in manufacturing, which makes up about 11% of the U.S. economy, per a Reuters article. Also, the U.S. economy has started to reopen in phases and there is massive Fed and government stimulus to combat the crisis which can help the economy rebound.
Notably, Shannon Saccocia, chief investment officer at Boston Private, has also said that “equity markets are reflecting the massive monetary and fiscal stimulus that has been injected over the past four months. Couple that with a more robust economic recovery than what was expected at the depths of the crisis, and interest rates once again at zero, and the rationale to diversify away from risk assets is hard to pinpoint,” per a CNBC article.
Going on, after being hit by the coronavirus pandemic, the housing market has shown a strong rebound, largely due to low mortgage rates and higher demand for new homes. In fact, August’s reading on U.S. homebuilder confidence for newly-built single-family homes has surged to the highest level in the 35-year long history of the index, matching the December 1998 record, per the NAHB press release.
There is some good news coming from the jobs market as well. Per the Labor Department, the initial U.S. weekly jobless claims have declined to 963,000 in comparison to Dow Jones estimate of 1.1 million (according to a CNBC article). Moreover, it was the first time that jobless claims were below 1 million since March, per a CNBC article.
Investors are continuously eyeing new stimulus talks and waiting for the new coronavirus relief package. The new stimulus package is expected to expand the jobless bonus to $400 per week, provide a payroll tax holiday for Americans making below $100,000 per year and defer student loan payments this year.
ETF Strategies to Follow
Here we discus certain ETF strategies to help investors make the most of the current market optimism.
Momentum ETFs
While the broader stock market is expected to gain on optimism surrounding the reopening of U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take center stage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report) , Invesco DWA Momentum ETF (PDP - Free Report) , Invesco S&P MidCap Momentum ETF (XMMO - Free Report) , VictoryShares USAA MSCI USA Value Momentum ETF (ULVM - Free Report) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: Here's Why it Makes Sense to Invest in Momentum ETFs Now).
Growth ETFs
Growth stocks are likely to witness a positive revenue and earnings trend at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are plenty of options in the growth ETF world, we highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF (VUG - Free Report) , Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) , SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: 5 Growth ETFs & Stocks to Ride the Market Rally).
Large-Cap ETFs
The current investment scenario with U.S. economy gradually picking up along with massive government and Fed stimulus makes it sensible to bet on large-cap ETFs as these funds perform well in such scenarios. Therefore, investors can consider SPDR S&P 500 ETF Trust (SPY - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) , Vanguard S&P 500 ETF (VOO - Free Report) , Schwab U.S. Large-Cap ETF (SCHX), iShares Russell Top 200 ETF (IWL), Vanguard Mega Cap ETF (MGC), Vanguard Mega Cap Growth ETF (MGK) and Multifactor Large Cap ETF (JHML) (read: Happy With Soaring Nasdaq? Convertible Bond ETF Beat It Lately).
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ETF Strategies to Play Market Optimism Amid Coronavirus Crisis
The broader S&P 500 index hit a record high on Aug 18 since the coronavirus selloff in late-March. The index was near its Feb 19 all-time closing high of 3,386.15 for more than a week before hitting a record close of 3,389.78 and an intraday all-time high of 3,395.06 on Aug 18. The broader S&P 500 has so far gained more than 54% since it touched the lows in March.
Major technology companies’ resilience to the coronavirus crisis is heavily supporting the market momentum. In this regard, Facebook (FB) has surged more than 27% year to date, Alphabet (GOOGL) has gained more than 16% and Amazon (AMZN) has rallied more than 79% with Netflix (NFLX) adding 52% in the same period. Apple (AAPL) and Microsoft (MSFT) have also surged around 34.1% and 57.4%, respectively, so far in the year.
The second half of 2020 is expected to keep facing the brunt of the pandemic as the second wave of the outbreak is gathering steam. In the current scenario, the rising work-from-home and online shopping trends, increasing digital payments, growing video streaming and soaring video game sales are slowly becoming the “new normal.” With the new trends making way, these major technology stocks are expected to continue to gain on rising demand for their products and services.
Factors Buoying Optimism
Notably, the S&P 500 index rally is largely reflective of investor optimism and improving U.S. economic fundamentals. Overall, the second-quarter earnings season has impressed investors as companies could fight the pandemic and deliver better results than feared by market participants.
The improving manufacturing numbers have instilled optimism among investors. The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and market expectations of 53.6. That is the highest reading since March 2019 as manufacturing activity is recovering after the pandemic-induced turbulence. A reading above 50 indicates expansion in manufacturing, which makes up about 11% of the U.S. economy, per a Reuters article. Also, the U.S. economy has started to reopen in phases and there is massive Fed and government stimulus to combat the crisis which can help the economy rebound.
Notably, Shannon Saccocia, chief investment officer at Boston Private, has also said that “equity markets are reflecting the massive monetary and fiscal stimulus that has been injected over the past four months. Couple that with a more robust economic recovery than what was expected at the depths of the crisis, and interest rates once again at zero, and the rationale to diversify away from risk assets is hard to pinpoint,” per a CNBC article.
Going on, after being hit by the coronavirus pandemic, the housing market has shown a strong rebound, largely due to low mortgage rates and higher demand for new homes. In fact, August’s reading on U.S. homebuilder confidence for newly-built single-family homes has surged to the highest level in the 35-year long history of the index, matching the December 1998 record, per the NAHB press release.
There is some good news coming from the jobs market as well. Per the Labor Department, the initial U.S. weekly jobless claims have declined to 963,000 in comparison to Dow Jones estimate of 1.1 million (according to a CNBC article). Moreover, it was the first time that jobless claims were below 1 million since March, per a CNBC article.
Investors are continuously eyeing new stimulus talks and waiting for the new coronavirus relief package. The new stimulus package is expected to expand the jobless bonus to $400 per week, provide a payroll tax holiday for Americans making below $100,000 per year and defer student loan payments this year.
ETF Strategies to Follow
Here we discus certain ETF strategies to help investors make the most of the current market optimism.
Momentum ETFs
While the broader stock market is expected to gain on optimism surrounding the reopening of U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take center stage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report) , Invesco DWA Momentum ETF (PDP - Free Report) , Invesco S&P MidCap Momentum ETF (XMMO - Free Report) , VictoryShares USAA MSCI USA Value Momentum ETF (ULVM - Free Report) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: Here's Why it Makes Sense to Invest in Momentum ETFs Now).
Growth ETFs
Growth stocks are likely to witness a positive revenue and earnings trend at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are plenty of options in the growth ETF world, we highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF (VUG - Free Report) , Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) , SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: 5 Growth ETFs & Stocks to Ride the Market Rally).
Large-Cap ETFs
The current investment scenario with U.S. economy gradually picking up along with massive government and Fed stimulus makes it sensible to bet on large-cap ETFs as these funds perform well in such scenarios. Therefore, investors can consider SPDR S&P 500 ETF Trust (SPY - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) , Vanguard S&P 500 ETF (VOO - Free Report) , Schwab U.S. Large-Cap ETF (SCHX), iShares Russell Top 200 ETF (IWL), Vanguard Mega Cap ETF (MGC), Vanguard Mega Cap Growth ETF (MGK) and Multifactor Large Cap ETF (JHML) (read: Happy With Soaring Nasdaq? Convertible Bond ETF Beat It Lately).
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 >>