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Stocks' Best Month Since 2020: Top ETF Areas of July

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Stocks in the United States and Europe had their biggest monthly increase since November 2020 on upbeat earnings and expectations of slower Federal Reserve monetary tightening. Investors’ hope that slowing inflation and slowing growth may keep the Fed to ease plans to push up interest rates boosted equities throughout the month. Cheaper valuation after a downbeat first-half also aided equities.

The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 added 8%, 5.6%, 11.4% and 9.1%, respectively in the past one month (as of Jul 29, 2022). Some earnings came in upbeat to close out the month. Amazon.com Inc. and Apple Inc. both companies beat revenues estimates. In July, Amazon shares gained 27%, marking their biggest monthly rally since October 2009.

The rally in Wall Street came despite 41-year high inflation, GDP contraction for the second-straight quarter and yet another Fed rate hike worth 0.75%. Against this backdrop, below we highlight a few ETF areas that won in July.

Clean Energy

ProShares S&P Kensho Cleantech ETF (CTEX - Free Report) – Up 17.7%

Invesco Solar ETF (TAN - Free Report) – Up 14.8%

Clean-energy shares jumped in July as Sen. Joe Manchin agreed to favor a roughly $370 billion climate and energy spending package that would include tax credits for electric vehicles, renewable energy projects and clean hydrogen, per a Wall Street Journal article. Solar and hydrogen stocks that are seen as particularly sensitive to changes in tax credits and incentives gained materially.

Homebuilding

iShares U.S. Home Construction ETF (ITB - Free Report) – Up 16.1%

SPDR S&P Homebuilders ETF (XHB - Free Report) – Up 14.8%

Benchmark U.S. treasury bond yields remained at moderate levels in July as recessionary fears boosted the safe-haven demand for the U.S. treasury bonds. The month started with 2.88% yield and ended at 2.67%, having hit a high of 3.09%.  This happened despite the steep Fed rate hikes. As rates slumped, homebuilding stocks gained. Cheaper valuation of homebuilding stocks also called for a rally (read: Has the Market Bottomed? 6 ETFs in High Momentum).

Technology

iShares North American TechMultimedia Networking ETF (IGN - Free Report) – Up 15.6%

Invesco DWA Technology Momentum ETF (PTF - Free Report) – Up 14.3%

This was yet another beaten-down zone. A moderation in the rally in the benchmark bond yields and hopes of slower Fed rate hikes in the coming days brightened the demand for growth sectors like technology. The sector is in high demand due to the rapid emergence of technological advancements.

Biotech

Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) – Up 15.2%

Biotech, the downtrodden segment of the market, has made a solid comeback in July. A Nasdaq benchmark for biotechnology stocks has plunged almost a third from its all-time high last August as optimism over developments to curb the COVID-19 pandemic bolstered the industry and led to concerns over elevated valuations. Additionally, this high-growth biotech segment has borne the maximum brunt of the broader market sell-off, following the rising interest rate outlook (read: 5 ETFs Riding High on the Biotech Comeback).