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ETF Strategies to Play the US Market Optimism

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Investors appear optimistic about the U.S. market as several factors seem to be favorable for a rally. In fact, the S&P 500 index climbed 0.2% to a new record high of 4,187.62.¿¿The market participants seem to be excited about this week, which is expected to be one of the busiest in the first-quarter earnings season. Notably, major tech players like Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) are expected to report earnings results this week.

Markedly, there are several factors that are increasing optimism for the Wall Street performance. Accelerated coronavirus vaccine rollout has buoyed hopes of faster U.S. economic reopening of non-essential businesses and the return to normalcy. Moreover, strengthening optimism, the United States has administered around 200 million doses of vaccines under 100 days of Biden administration, per a CNN report. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults have received at least one vaccine dose, per a Reuters article.

Moving on, the Fed¿¿¿s continued dovish stance is increasing chances of faster U.S. economic growth recovery from the coronavirus pandemic-led slowdown. The central bank has decided to maintain rates near zero until 2023, at least. Moreover, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.

A large fiscal stimulus is also painting an upbeat scenario for the U.S. economic recovery. President Joe Biden has signed the $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law.¿¿

It is also worth noting here that, on Mar 31, Biden unveiled his $2.3-trillion infrastructure development plan that focuses on improving American infrastructure. The proposal includes funds for restoring roads and bridges, shoring up affordable housing, backing clean-energy projects and creating a nationwide broadband network. This will create millions of jobs, resulting in solid hiring in the coming months and benefit sectors like basic materials, industrials and utilities. Biden is expected to discuss the proposal at a joint session of Congress on Apr 28, according to a CNBC article.

Moving on, the release of strong economic data like retail sales and unemployment has also been instilling confidence among investors. Notably, U.S. retail sales recorded the best gains in March in 10 months, according to a Reuters article. Markedly, sales surged 9.8% sequentially in March 2021, following a downwardly revised 2.7% decline in the previous month. The metric also surpassed market predictions of a 5.9% rise.

Thus, commenting on the current market conditions, Andrew Sheets, chief cross-asset strategist at Morgan Stanley, has said that ¿¿¿growth is still improving and liquidity is still abundant. The bull market remains intact, and I struggle to see the type of calamity that defined the summers of 2010, 2011, 2012 and 2015. But a harder, choppier, more range-bound summer does seem likely,¿¿¿ per a CNBC article.

ETF Strategies to Follow

Here we discuss certain ETF strategies to help investors gain from optimism surrounding the chances of another trench of coronavirus-aid package and improved coronavirus vaccine rollout.

Momentum ETFs to Play

While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take centerstage 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),¿¿VictoryShares USAA MSCI USA Value Momentum ETF¿¿(ULVM)¿¿and¿¿SPDR Russell 1000 Momentum Focus ETF¿¿(ONEO) (read:¿¿ETF Areas That Are Looking Attractive in April).

Growth ETFs to Consider

Growth stocks are generally expected 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 several options in the growth ETF world, we have 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),¿¿SPDR S&P 500 Growth ETF¿¿(SPYG) and¿¿Vanguard Mega Cap Growth ETF¿¿(MGK) (read:¿¿Don't Let Underperformance in Growth ETFs Fool You).

Small-Cap ETFs to Watch Out For

Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs in the recent past. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and thus well-positioned to outperform when the economy improves. The latest release of economic data is also indicating toward an improving economy. Therefore, investors can consider¿¿Schwab U.S. Small-Cap ETF¿¿(SCHA - Free Report) ,¿¿SPDR S&P 600 Small Cap ETF¿¿(SLY - Free Report) ,¿¿Vanguard S&P Small-Cap 600 ETF¿¿(VIOO) and¿¿John Hancock Multifactor Small Cap ETF¿¿(JHSC) (read:¿¿A Spread of Small-Cap ETFs Touching New Heights).

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