Back to top

Image: Bigstock

ETFs to Play as Dow Logs 3-day Winning Streak

Read MoreHide Full Article

Wall Street seems super-excited as the Dow Jones recently recorded three-day winning streak, snapping the latest inflation-induced volatility. Tech stocks too gained too lately. Vaccination and lower infection rates have boosted the reopening trades.  

What Led to the Rally?

Upbeat U.S. Manufacturing PMI

The IHS Markit US Manufacturing PMI jumped to a fresh record of 61.5 in May of 2021, beating market forecasts of 60.2 amid stronger demand. New orders also grew at a record pace while output growth took pace despite the marked worsening in vendor performance due to limited operating activities.

Oil Rally

Furthermore, it has been noticed lately that Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally spreads optimism over the broader market as a whole, in most cases, on a particular day of oil surge, the rise in the Dow Jones is steeper than that of the S&P 500, or vice versa.

Covid cases in the United States have fallen to their lowest level since June as the United States prepares for Memorial Day weekend, making the case for reopening trade stronger. Most of the Memorial Day weekend travelers -- 34 million -- are expected to hit the road instead of flying, representing a 52% rise in car travel over last year. This would boost the demand for energy-based commodities.

Focus on Blue-Chip Stocks

The Dow Jones assigns greater weight to higher-priced stocks, which is one of the reasons behind the recent surge. Overall, blue chip stocks are performing exceptionally of late. Also, large-cap stocks have substantial foreign exposure and thus perform better in a weaker dollar environment — like what we are witnessing now thanks to a dovish Fed. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has lost 1.2% past month.

Now, since the Dow Jones is a price-weighted index, bullishness over this high-priced large-cap cohort has made the case for the Dow investing more appealing.

ETFs in Focus

Therefore, investors seeking a momentum play, can bet on SPDR Dow Jones Industrial Average ETF (DIA - Free Report) (a Zacks Rank #1 (Strong Buy), Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones U.S. ETF (IYY). Investors can also settle for leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM) and ProShares UltraPro Dow30 (UDOW) 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