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ETF Ways to Play Santa Rally's Best Start in 20 Years

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The Santa Claus rally is off to the best start in over 20 years, per a MarketWatch article and historically that goes in favor of the entire seasonal period, Dow Jones data show. Notably, Santa Claus rally refers to the jump in stock prices in the week between Christmas and New Year's Day

In fact, in the eight occasions since 1929 when the S&P 500 has advanced at least 1% to start that seven-session trading period, the Santa Claus rally has yielded a gain 100% of the time, with an average gain of 3.3%, the MarketWatch article noted.

Over the past 92 years, the S&P 500 gained 77% of the time during the year-end rally period, according to data from Sundial Capital Research. The average gain in this seven-day trading period tallied 2.66%, per a Yahoo Finance article.

On Dec 27, the S&P 500 rose 1.38%, officially starting Santa Rally 2021 greatly. For the second successive trading session, the S&P 500 climbed past its previous peak.

Against this backdrop, below we highlight a few ETF areas that could be tapped right now. These ETFs are Real Estate Select Sector SPDR ETF (XLRE - Free Report) , Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) , SPDR S&P Retail ETF (XRT - Free Report) , Siren DIVCON Leaders Dividend ETF (LEAD - Free Report) and Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report) .

Real Estate

The ETFs on the U.S. real estate sector have been surging lately on still-low rates. The fast-spreading new COVID-19 variant Omicron and the Fed’s hawkish signal led to a rise in safe-haven demand. Plus, rising inflation is great for real estate investing.  Apartment rent and occupancy hit record highs, even as market entered its traditionally sluggish season.

Real Estate Select Sector SPDR ETF (XLRE - Free Report) – The Real Estate Select Sector Index includes securities of companies from the following industries real estate management and development and REITs, excluding mortgage REITs. XLRE yields 2.71% annually.

Low P/E Momentum ETFs

We suggest tipping toes into the momentum ETFs with a relatively low P/E. Momentum investing is an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks which are sizzling on the market.

Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) – The underlying S&P 600 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell 2000 Index. XSVM has a P/E of 11.59X versus S&P 500’s P/E of 21.70X.


Holiday sales have been in sweet spot with every event starting from Thanksgiving boding well for retailers. U.S. consumers returned to stores this holiday season as overall sales from Nov. 1st to Dec. 24th grew 8.5% relative to 2020, per a report from Mastercard SpendingPulse. “Consumers splurged throughout the season, with apparel and department stores experiencing strong growth as shoppers sought to put their best dressed foot forward,” according to the report.

So, who can forget the Zacks Rank #1 (Strong Buy) SPDR S&P Retail ETF (XRT - Free Report) , which puts 18.7% weight in Apparel? Apparel prices jumped 17.3% online in November. For the past eight months, Adobe data showed online prices for apparel have risen by over 9% year over year. Internet & Direct Marketing Retail (21.9%), Automotive Retail (18%) and Specialty Stores (16.3%) are other key industries XRT gives exposure to.


Even if Wall Street is at its best, occasional Omicron fear and uneven global growth momentum might keep the high-risk securities on the edge. This might keep bond yields at lower levels for long. On Dec 27, benchmark U.S. treasury yield was 1.48%. A low treasury yield would spur investors to rush to dividend destinations.

Siren DIVCON Leaders Dividend ETF (LEAD - Free Report) – The Zacks Rank #2 (Buy) LEAD is a type of dividend aristocrat and apparently a safe investment. The underlying Siren DIVCON Leaders Dividend Index capitalizes on the theory that, over time, companies that consistently grow their dividends tend to have investment returns above overall market returns. The ETF yields 1.82% annually.

Cash Cows

When analyzing a business, it is often said that ‘cash is king.’ Hence, some investors like to focus on companies that generate excess cash flows. These kinds of companies have plenty of leeway to cover themselves from uncertainties.

Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report) – The Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to top 100 small-cap U.S. companies with the highest free cash flow yield. Small-caps are also good bets to tap the January Effect.

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