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Is Wall Street Primed for Solid 2H Gains? ETFs in Focus

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Despite dealing with tight monetary conditions and an unexpected banking crisis, the S&P 500 managed to score big gains in the first half of 2023. The index has increased 7.5% in the first quarter and 14% in the first half. The S&P 500 index also entered into a new bull market.

Historical data suggests that when the S&P 500 concludes the first half of the year more than 10% higher, the median return for the second half is usually positive. In fact, in the 22 instances since 1950 when this has happened, the median return for the second half of the year is 8% with an 82% win ratio, per Fundstrat’s data, as quoted on MarketWatch.

Moreover, if the S&P 500 turned negative in the previous year but logged a 10% gain in the first half of the following year, the median return for the second half is even higher at 12% with an 89%-win ratio, per the source.

Is a Chaotic 2022 Setting Stage for 2H Rally?

The S&P 500 Index had a challenging 2022. It ended the year down by about 19%, marking its worst performance since the financial crisis of 2008. This period of decline set the stage for a recovery in 2023. If we go by the above Fundstrat’s data, the S&P 500 could hit 4,900 by the year end, marking about 12% gains in 2H.

Q1 2023 Gives Signs of a Rebound: Q2 Looks Decent

The 1Q23 corporate earnings came in better-than-expected. Earnings estimates for Q2 have come down only a touch since the start of April, with several sectors starting to see positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical, and Retail.

Tech Sector Continues to Be the Showstopper

Among the performers, Nvidia, the world's largest chipmaker by market cap, gained the most. It returned a staggering 181% this year, thanks to the AI boom. Tech giants such as Apple and Microsoft also saw significant gains. Though rising rate worries could spell trouble for the sector occasionally, the AI euphoria is here to stay and so is the tech sector’s supremacy.

Resilient Consumer

The consumer savings pattern is an economic indicator that provides insight into the financial health of households. In April 2023, the personal saving rate in the United States amounted to 4.1%. Though the savings rate got hurt by higher inflation and slower wage growth, the current rate has improved from that of June 2022, when the rate had slipped to a 15-year low of 2.7%. Consumers also keep splurging on the retail industry. This suggests that consumers have more confidence in the economy and are more likely to spend (read: Why Is It the Time to Invest in Retail ETFs?).

Rebound in Homebuilding Sector

The housing sector has marked a solid improvement in almost all parameters. The existing home sales in May grew and surpassed estimates. Moreover, U.S. home prices recorded first annual fall in 11 Years, which is likely to boost further sales. New home sales also remained strong and so is builders’ sentiment.

Financial Sector to Shrug of An Unexpected Crisis?

The financial sector faced huge challenges this year due to the collapse of three U.S. regional banks. However, the sector received a positive news just before entering the second half. The 23 U.S. banks involved in the recent Fed stress test have proven their mettle, enduring an imaginary severe global recessionary scenario. This scenario considered unemployment jump of up to 10% and a stock market plunge of 45%.

Any Wall of Worry?

Experts warn that the U.S. economy may slip into a recession soon. The U.S. central bank has indicated that more rate hikes are in the cards. Any such Fed move may the halt the S&P 500 and the Nasdaq rally for a short period.

ETFs to Watch

Against this upbeat backdrop, investors may track S&P 500 ETFs like Vanguard S&P 500 ETF (VOO - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) and SPDR S&P 500 ETF (SPY - Free Report) .

Investors can also play the growth part of the index with (SPYG - Free Report) and the value part of the index with (SPYV - Free Report) . SPDR Portfolio S&P 500 High Dividend ETF Fund (SPYD - Free Report) is a good bet for the dividend plays of the index.

Investors can also bet on the leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares (SPXL - Free Report) , ProShares Ultra S&P500 (SSO) and ProShares UltraPro S&P500 (UPRO) while the index is on an uptrend.

If the S&P 500 index shows a declining trend, then investors can play ProShares UltraPro Short QQQ (SQQQ - Free Report) , ProShares Short S&P500 (SH), ProShares UltraShort S&P500 (SDS) and ProShares Short QQQ (PSQ).

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