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Ride Out the Earnings Optimism-Driven Rally With These ETFs

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Investors are loudly cheering the impressive third-quarter earnings releases. The strength in the ongoing earnings season is relieving investors of their concerns about rising inflation levels and the possibility of the Fed’s tapering moves to be implemented soon. Thus, the S&P 500 index closed 0.3% high, hitting a record close of 4,549.78 along with touching an intraday high of 4,551.44 on Oct 21. The tech-heavy Nasdaq Composite index was also up 0.6% on the same day.

The companies have been delivering impressive profit performance despite continuously high costs. Recently, Tesla (TSLA - Free Report) , HP Inc. (HPQ - Free Report) , NVIDIA Corporation (NVDA - Free Report) and Netflix (NFLX - Free Report) , among others, posted impressive quarterly earnings performance driving the stock market rally.

As mentioned in a CNBC article, Jim Paulsen of the Leuthold Group has said that the inflation levels and profit margins have a positive correlation for the past 20 years. In this regard, he noted that “Investors are understandably concerned about reports that inflation pressures are eroding profit margins and what that may mean for the stock market. However, elevated inflation appears to bolster S&P 500 EPS on the whole.”

Going on, expressing optimism on the current earnings season, Jim Reid, head of thematic research at Deutsche Bank, has also commented “There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on,” per a CNBC article.

In an encouraging development, a lower-than-expected number of weekly jobless claims added to investors’ optimism. Initial unemployment insurance claims in the week ending Oct 15 came in at 290,000, as mentioned in a CNBC article. According to the same article, the metric lagged the 300,000 level as estimated by the economists, per a Dow Jones survey.

Investors and vaccine makers like Moderna (MRNA) and Johnson & Johnson (JNJ) have reasons to cheer the latest update concerning the application of COVID-19 booster shots. To combat the coronavirus outbreak and accelerate the distribution process of extra doses in the United States, the Centers for Disease Control and Prevention and its vaccine advisory committee and the FDA approved the vaccine booster shots produced by Johnson & Johnson and Moderna.

As mentioned in a CNBC article, the regulators have also permitted “mixing and matching” vaccines. This will enable Americans to opt for a booster shot from a different developer than the one who came up with the initial doses.

ETFs to Ride the Wave

Investors who seek to capitalize on the strong trends should consider the following ETFs:

SPDR S&P 500 ETF Trust (SPY - Free Report)

This fund seeks to provide investment results that before expenses generally correspond to the price and the yield performance of the S&P 500 Index. Its AUM is $407.89 billion and the total expense ratio, 0.09% (read: Best Leveraged ETF Areas of Past Decade).

iShares Core S&P 500 ETF (IVV - Free Report)

The fund seeks to track the investment results of an index composed of large-capitalization U.S. equities. Its AUM is $302.73 billion and the total expense ratio, 0.03% ( read: Financial ETFs at a 52-Week High: Further Rally Looks Likely).

SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report)

The fund seeks to provide investment results that before expenses generally correspond to the price and the yield performance of the Dow Jones Industrial Average. Its AUM is $29.93 billion and the total expense ratio, 0.16% (read: What Lies Ahead for Dow ETFs in Q3 Earnings?).

iShares Dow Jones U.S. ETF (IYY - Free Report)

The fund seeks to track the investment results of a broad-based index composed of U.S. equities. Its AUM is $1.77 billion and the total expense ratio, 0.20% (read: ETFs to Play Dow Jones' Best Start to October Since 2003).

iShares MSCI USA Momentum Factor ETF (MTUM - Free Report)

This fund provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum SR Variant Index. It charges 15 bps in fees per year and is a popular choice, with AUM of $16.46 billion (read: Momentum ETFs Looking Attractive Amid Latest Market Optimism).

Invesco DWA Momentum ETF (PDP - Free Report)

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.81 billion in its asset base and charges 62 bps in annual fees.