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Beyond AI, 6 Factors That Could Boost Wall Street ETFs in 2H
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The second half of 2023 is expected to offer new record highs on Wall Street, according to bullish strategist Tom Lee of Fundstrat, as quoted on Yahoo Finance. While many analysts have attributed the likely rally to advancements in artificial intelligence (AI), Lee emphasizes several other factors that could drive the stock markets higher. Let’s find out what those winning factors are.
Falling Inflation and a Resilient Economy
Lee highlights falling inflation as a key factor contributing to the positive outlook for stocks. Although the core Personal Consumption Expenditures Index increased by 4.6% in May, it represents a substantial decrease from the peak inflation rate of over 9% observed just a year ago. This decline in inflation may inspire the Fed to go slow in the policy tightening, which supports the bullish sentiment for stocks.
Resilient Consumer
The consumer savings pattern is an economic indicator that provides insight into the financial health of households. In May 2023, the personal savings rate in the United States amounted to 4.6%. Though the savings rate got hurt by higher inflation and slower wage growth, the current rate has improved from June 2022, when the rate had slipped to a 15-year low of 2.7%.
Solid Cash Reserves on the Sidelines
According to Lee, there is a substantial amount of sidelined cash, which amounts to a whopping $5.5 trillion. Notably, data from Pantheon Macro reveals that the top 1% of households has increased its cash balance by 52% since 2019, while the 80th to 99th percentile boosted their cash balances by 32%. As confidence builds up, investors may be interested in using their cash reserves in the markets, which will provide Wall Street with an upward momentum.
A New Bull Market
Fundstrat boosted its full-year price target for the S&P 500 from 4,750 to 4,825 in its 2023 mid-year outlook. Lee believes that a new bull market is taking root. An ebbing recession is probably playing a key role in boosting the market. Market veteran Ed Yardeni boosted Q2 real GDP forecast from 1.0% to 2.0%, followed by 2.0% in Q3 and Q4, as quoted on CNBC.
Rebound in Homebuilding Sector
The housing sector has marked a solid improvement in almost all parameters. In May, the sale of existing homes grew and surpassed estimates. Moreover, U.S. home prices recorded the first annual fall in 11 years, which is likely to boost sales. New home sales have also been strong and so have been builders’ sentiments.
Yardeni indicated that large parts of the residential real-estate sector had been in a recession for the past eight quarters. But according to Yardeni, now the space is bouncing back strongly enough to keep the economy and markets afloat.
Massive Infrastructure Spending
Per the CNBC article, Yardeni believes that massive spending on infrastructure and efforts to bring manufacturing back to America is boosting the economy. The Inflation Reduction Act has been effected before an actual recession hits.
How to Play Wall Street With ETFs?
Tech Stocks and Other Cyclicals Lead the Way
Lee recommends focusing on tech stocks, industrials, and energy sectors. We expect industries that are tied closely to economic cycles, including consumer discretionary, to do well.
Against this backdrop, below, we highlight a few ETFs that should perform well in 2H.
Image: Bigstock
Beyond AI, 6 Factors That Could Boost Wall Street ETFs in 2H
The second half of 2023 is expected to offer new record highs on Wall Street, according to bullish strategist Tom Lee of Fundstrat, as quoted on Yahoo Finance. While many analysts have attributed the likely rally to advancements in artificial intelligence (AI), Lee emphasizes several other factors that could drive the stock markets higher. Let’s find out what those winning factors are.
Falling Inflation and a Resilient Economy
Lee highlights falling inflation as a key factor contributing to the positive outlook for stocks. Although the core Personal Consumption Expenditures Index increased by 4.6% in May, it represents a substantial decrease from the peak inflation rate of over 9% observed just a year ago. This decline in inflation may inspire the Fed to go slow in the policy tightening, which supports the bullish sentiment for stocks.
Resilient Consumer
The consumer savings pattern is an economic indicator that provides insight into the financial health of households. In May 2023, the personal savings rate in the United States amounted to 4.6%. Though the savings rate got hurt by higher inflation and slower wage growth, the current rate has improved from June 2022, when the rate had slipped to a 15-year low of 2.7%.
Solid Cash Reserves on the Sidelines
According to Lee, there is a substantial amount of sidelined cash, which amounts to a whopping $5.5 trillion. Notably, data from Pantheon Macro reveals that the top 1% of households has increased its cash balance by 52% since 2019, while the 80th to 99th percentile boosted their cash balances by 32%. As confidence builds up, investors may be interested in using their cash reserves in the markets, which will provide Wall Street with an upward momentum.
A New Bull Market
Fundstrat boosted its full-year price target for the S&P 500 from 4,750 to 4,825 in its 2023 mid-year outlook. Lee believes that a new bull market is taking root. An ebbing recession is probably playing a key role in boosting the market. Market veteran Ed Yardeni boosted Q2 real GDP forecast from 1.0% to 2.0%, followed by 2.0% in Q3 and Q4, as quoted on CNBC.
Rebound in Homebuilding Sector
The housing sector has marked a solid improvement in almost all parameters. In May, the sale of existing homes grew and surpassed estimates. Moreover, U.S. home prices recorded the first annual fall in 11 years, which is likely to boost sales. New home sales have also been strong and so have been builders’ sentiments.
Yardeni indicated that large parts of the residential real-estate sector had been in a recession for the past eight quarters. But according to Yardeni, now the space is bouncing back strongly enough to keep the economy and markets afloat.
Massive Infrastructure Spending
Per the CNBC article, Yardeni believes that massive spending on infrastructure and efforts to bring manufacturing back to America is boosting the economy. The Inflation Reduction Act has been effected before an actual recession hits.
How to Play Wall Street With ETFs?
Tech Stocks and Other Cyclicals Lead the Way
Lee recommends focusing on tech stocks, industrials, and energy sectors. We expect industries that are tied closely to economic cycles, including consumer discretionary, to do well.
Against this backdrop, below, we highlight a few ETFs that should perform well in 2H.
Technology Select Sector SPDR ETF (XLK - Free Report) – Zacks Rank #1 (Strong Buy)
Vanguard Consumer Discretionary ETF (VCR - Free Report) – Zacks Rank #1
Industrial Select Sector SPDR ETF (XLI - Free Report) – Zacks Rank #2 (Buy)
Energy Select Sector SPDR ETF (XLE - Free Report) – Zacks Rank #3 (Hold)