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5 Top ETF Stories of 2021 That May Influence 2022 Trends

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U.S. stocks have enjoyed an astounding rally this year, with the major bourses hitting a series of new peaks. Solid corporate earnings and an improving economy have driven the markets higher though inflation fear, the resurgence in COVID-19 cases and Fed taper concerns weighed on investors’ sentiment.

With just few sessions left to end 2021, the S&P 500 is up 27.4% and is approaching toward the new milestone of 4,800. The Dow Jones and the Nasdaq have gained 18.9% and 22.4%, respectively (read: 5 Stocks That Have Powered the S&P 500 ETF in 2021).

Below we discuss some of the hot events of 2021 that will likely influence the market in a big way going into the New Year:

Fed Taper

In the latest FOMC meeting, the Federal Reserve signaled a more aggressive unwinding of its pandemic-era monthly bond-buying, setting the stage for three interest rates hikes in 2022 to fight inflation. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November (read: Fed Speeds Up Taper Plans: Sector ETFs to Gain).

The speedy tapering came amid inflation, solid job gains in the recent months, and a declining unemployment rate. Inflation is the hottest in nearly four decades.

The financial sector seems to be the biggest beneficiary of the Fed’s move. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. This ultra-popular financial ETF — Financial Select Sector SPDR Fund (XLF - Free Report) — with a Zacks ETF Rank #1 (Strong Buy) seems a great choice to play this trend. Financial Select Sector SPDR Fund seeks to provide broad exposure to the financial sector, charging investors 12 bps in annual fees.

Upbeat Earnings

Earnings this year so far have shown solid growth. The Q4 earnings for the S&P 500 are expected to be up 19.3% on 11.4% revenue growth. This would follow the 41.5% rise in earnings on 17.3% higher revenues in Q3. Earnings were up 95% in Q2 and 50.1% in Q1. Overall, 2021 earnings are expected to increase 45.4% in contrast to the 13% year-over-year decline reported last year.

Investors seeking to capitalize on this growth can choose earnings-focused ETFs like WisdomTree Earnings 500 Fund (EPS - Free Report) . It provides exposure to the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market. WisdomTree Earnings 500 Fund charges 8 bps in annual fees and has AUM of $660 million. The product has a Zacks ETF Rank #3 (Hold).

High Inflation

Prices of almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. The consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%. The pandemic-related supply shortages and continued strength in consumer demand continued to push prices higher (read: 5 ETFs Benefiting From High Inflation).

The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4.9% year over year in November — the steepest increase since 1991. Investors could make some profits by investing in ETFs benefiting from rising inflation. While there are many options, Invesco DWA Basic Materials Momentum ETF (PYZ - Free Report) could be a compelling choice for investors. This fund offers investors exposure to the companies showing relative strength (momentum), charging 60 bps in annual fees. Invesco DWA Basic Materials Momentum ETF has a Zacks ETF Rank #2 (Buy).

Energy Sector: A Winner

The energy sector has been the outperformer this year on surging oil prices. Tightening supply and improving demand fundamentals have been driving prices higher. Overall demand for fuel has rebounded to the pre-pandemic levels. While all the energy ETFs are on a tear, First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report) stole the show, jumping more than 103%. It offers exposure to U.S. companies involved in the exploration and production of natural gas. First Trust ISE-Revere Natural Gas Index Fund charges 60 bps in annual fees and has a Zacks ETF Rank #2 (read: 5 ETFs That Gained More Than 40% in 2021).

ETF AUM Nears $10 Trillion

The ETF industry has witnessed a spectacular year, pulling in more than $1 trillion in new inflows and on track to top $10 trillion in total assets under management. The record inflows are driven by the rising stock market and a lack of high-yielding alternatives. The low-cost passively managed U.S. funds that track indexes run by Vanguard Group, BlackRock and State Street, which together control more than 75% of all U.S. ETF assets, have been the biggest money pullers this year.

Vanguard S&P 500 ETF (VOO - Free Report) topped the list of inflows, bringing in $45.5 billion in capital this year. It tracks the S&P 500 Index and charges investors 3 bps in annual fees.