Wall Street jumped on the final trading session of last week, with the S&P 500 snapping a three-week losing streak as investors digested the Federal Reserve officials' latest affirmations that they are focused on lowering inflation. Powell's assertion that the Fed's commitment to handling inflation is "unconditional" indicated that the central bank would not stop hiking rates in modest signs of economic slowdown or recession.
The S&P 500 advanced by more than 3% on Friday, logging back-to-back days of gains and marking its first weekly advance since late May. The S&P 500 (up 6.45%), the Dow Jones (up 5.4%), the Nasdaq Composite (up 7.5%) and the Russell 2000 (up 6%) gained handsomely last week. JPMorgan expects this week as well to be big for the markets,
as quoted on CNBC. What’s the Bright Picture?
Probably, investors believe that the chances of a long-standing recession are less. When inflation cools down, the Fed will stay put and the ailing economy will come back to a decent shape. The Fed’s inflation projection has been upped for this year, while it expects inflation to cool off in 2023 and 2024.
Plus, economic recession takes time to reflect profit recession. Wall Street has more to do with profits than the economy. So, if an economic recession is short-lived, we might not see a deep-bottomed profit recession at all. This has probably led to a risk-on sentiment from last week.
Any Other Bullish Signal?
Among big market news, Wall Street’s largest banks are ready to return excess capital to shareholders in the form of dividends and share buybacks after each of them cleared the Federal Reserve’s 2022 Stress Test. The annual stress tests were established by the Fed, following the 2008 financial crisis, as a measure to ensure that banks could withstand any similar shock in the future.
If this wasn’t enough, according to Bank of America, the bull market is a few months away,
as quoted on MarketWatch. Per history, B. of A. Global Investment Strategy’s chief investment strategist, Michael Hartnett, pointed out that the average peak-to-trough bear-market decline has been 37.3% over 289 days. The S&P 500 is down about 24% from the all-time high.
Matching that pattern should put the end of the bear market on Oct 19, 2022, according to statistical averages, with the S&P 500 likely bottoming at 3,000. An end typically marks a new beginning, with Bank of America pointing out that the average bull market lasts much longer 64 months with a 198% return, “so next bull sees the S&P 500 at 6,000 by Feb 28,” per Hartnett, quoted on MarketWatch.
Against this backdrop, below, we highlight a few ETFs that could be tapped for this week.
SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report) – Zacks Rank #1 (Strong Buy)
Amid a rising rate environment, banking stocks may gain. The latest Fed Stress Test result is another positive for the sector. However, if the yield flattens, then banking stocks may not gain much, but the steepening yield curve is favorable for the segment.
ARK Next Generation Internet ETF ( ARKW Quick Quote ARKW - Free Report)
This is a beaten-down zone and is likely to spring the most once the market turns around. This is a tech-heavy area. The fund gained as much as 4.23% on Friday and if the winning momentum prevails, the fund is likely to add sharp gains this week.
iShares Russell 2000 Value ETF ( IWN Quick Quote IWN - Free Report) – Rank #1
The global economy, including the United States, has been struggling to cope with red-hot inflation. Investors should note that this time, high inflation has hit the world due to supply-chain woes caused by COVID-19-led lockdowns and the Russia-Ukraine war.
Probably this is why the theme of deglobalization should be considered seriously right now. Local produce, local manufacturing and local sales are important now. This is where small-cap stocks win (read:
Top-Ranked Small-Cap ETFs to Avoid Global Supply Chain Woes). Technology Select Sector SPDR ETF ( XLK Quick Quote XLK - Free Report) – Rank #1
Big tech stocks and ETFs offer safe exposure in an otherwise risky and growth zone. This space has suffered a lot in recent weeks and is poised for gains amid any kind of relief rally.
Amplify Online Retail ETF ( IBUY Quick Quote IBUY - Free Report)
The underlying EQM Online Retail Index utilizes a rules-based methodology to select a globally diverse group of companies with 70% or more revenues from online and virtual sales. With energy prices falling suddenly, consumer savings may rise. These extra savings can be dispensed on discretionary items.