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Should You Consider Momentum ETFs as Market Recovers?

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Wall Street has been witnessing some strength on the bourses as investors are cheering impressive fourth-quarter earnings reports. The S&P 500 and Nasdaq Composite indices have been gaining solidly on the results, rising 0.8% and 1.3%, respectively, on Feb 8. Riding the tide, the Dow Jones Industrial Average rose 1.1% on the same day. Another fresh bunch of encouraging corporate earnings releases, including big names like Amgen and Harley-Davidson supported the market movements.

The impressive fourth-quarter earnings results have been keeping investors busy. Notably, 77% of the 300 S&P 500 companies that have reported earnings results have surpassed analysts’ earnings estimates and 75% have beaten revenue projections as of Feb 8 morning (mentioned in a CNBC article, according to FactSet). The earnings results are helping ease investor worries surrounding the rising supply-chain disturbances, gradually eroding corporate profit margins.

Going on, the strong jobs report for January is also supporting solid market optimism. The U.S. economy added 467,000 jobs in January 2022, surpassing market expectations of a rise of 150,000. The upside was largely driven by easing business restrictions amid the reopening of economies and accelerated coronavirus vaccine rollout. January figures stood out to be pleasantly surprising as the Omicron coronavirus variant weighed on the jobs market. The ADP report also showed that private companies cut 301,000 jobs.

Notably, the average workweek for all employees on private nonfarm payrolls declined by 0.2 hours to 34.5 hours in January. The average hourly earnings rose by 23 cents to $31.63. The average hourly earnings jumped 5.7% over the past year. In January, the average hourly earnings of private-sector production and nonsupervisory employees also climbed by 17 cents to $26.92.

The improving jobs report also signals a higher possibility of the Federal Reserve hiking the benchmark interest rates in March. This is preparing investors for the upcoming rate hike, supporting market movements.

Momentum ETFs Worth Your Attention

Momentum investing looks in fetching profits from hot stocks that have shown an uptrend over the past few weeks or months. Here we present five ETFs that could outperform on the current market optimism. Further, these could beat broader market returns in the coming months if the optimism prevails.

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

iShares MSCI USA Momentum Factor ETF provides exposure to large and mid-cap stocks that exhibit relatively higher price momentum by tracking the MSCI USA Momentum SR Variant Index.

iShares MSCI USA Momentum Factor ETF charges 15 basis points (bps) in fees per year and is a popular choice, with AUM of $12.69 billion (read: ETFs to Join Wall Street's Latest Rebound Rally).

Invesco DWA Momentum ETF (PDP - Free Report)

Invesco DWA Momentum ETF tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics.

Invesco DWA Momentum ETF has amassed $1.42 billion in its asset base and charges 62 bps in annual fees.

Invesco S&P MidCap Momentum ETF (XMMO - Free Report)

Invesco S&P MidCap Momentum ETF follows the S&P Midcap 400 Momentum Index, designed to identify mid-cap firms with the highest momentum scores.

XMMO has AUM of $846.2 million and an expense ratio of 0.33% (read: 4 Top-Ranked ETF Underperformers of 2021 Could be Winners in 2022).

VictoryShares USAA MSCI USA Value Momentum ETF (ULVM - Free Report)

VictoryShares USAA MSCI USA Value Momentum ETF tracks the MSCI USA Select Value Momentum Blend Index, offering exposure to large and mid-cap companies with higher exposure to value and momentum factors while maintaining a moderate turnover and lower realized volatility than traditional capitalization-weighted indices.

VictoryShares USAA MSCI USA Value Momentum ETF accumulated $324.1 million in AUM and charges 0.20% in expense ratio.

SPDR Russell 1000 Momentum Focus ETF (ONEO - Free Report)

With AUM of $313.2 million, SPDR Russell 1000 Momentum Focus ETF targets large-cap securities with a combination of core factors (high value, high quality and low size characteristics) and a focus factor comprising high momentum characteristics.

SPDR Russell 1000 Momentum Focus ETF follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps.