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Thanks to an improving U.S. economy and reassuring earnings released so far, sentiments in U.S. markets bounced back lately overriding worries over the presidential election, uncertainty regarding the timing of the Fed rate cuts and volatility in the oil patch. Decent GDP data from Europe also supported the rally as this quelled the global growth worries a bit (read: Should You Play International ETFs Right Now?).
But note that though the odds of a severe downturn are pretty low at the current level (or nil to tell you the truth), the fact remains that the U.S. economy and market is far from being super-healthy.
Rise of Stock Valuation Despite Uptick in Treasury Yields
Stock valuations have risen even as Treasury yields have increased this year, following an uncertainty regarding the timing of the start of Fed rate cuts. Higher yields tend to affect equity valuations negatively as it means bonds are offering more investment competition to stocks and that future company cash flows are valued less highly.
That means stock valuations could record further uptrend ahead if the Fed delivers its widely expected cuts and yields slump. And while a more optimistic earnings outlook would support the lofty valuation, profit expectations for 2024 have largely remained stable this earnings season as companies have reported results.
Lowered Corporate Earnings Expectations Even for Future Outlook
Despite the strong Q4 results, the outlook for future quarters remains uncertain, lacking positive momentum. Although the earnings picture has improved since the start of 2024, results are still far below what Wall Street had expected just four months ago.
Moreover, both first-quarter and full-year 2024 earnings estimates have declined since January 1st, as many companies have issued cautious guidance during this earnings season, as quoted on CNBC.
IMF Upped Global Growth Forecasts
Meanwhile, the International Monetary Fund (IMF) has upgraded its global growth forecast for 2024. It now anticipates a 3.1% expansion, marking a 0.2 percentage point increase from its previous projection in October. There is an expected 3.2% growth in 2025. Factors contributing to this revised outlook include resilience in the U.S. economy, Chinese fiscal stimulus, and strong performance from large emerging market economies.
So, what sort of stocks should one pick to cash in on the moderately buoyant? In our opinion, it has to be the mid-cap ETF corner. We’ll tell you why.
Wining Argument Behind Mid-Cap Investing
A bet on small-cap stocks is not reasonable as this part of the capitalization spectrum better reflects the domestic economic health. And the U.S. economic growth may be hindered due to prolonged high rates. On the other hand, the U.S. dollar is up 2.5% this year against major currencies. This puts large-cap stocks in jeopardy as mega-cap stocks have considerable exposure in foreign lands and are thus susceptible to adverse currency translation. This theory makes mid-cap ETFs more intriguing as these offer the best of both worlds.
Below we highlight a few mid-cap ETFs that have hit a 52-week high lately.
Image: Bigstock
Mid-Cap ETFs at a 52-Week High: Here's Why
Thanks to an improving U.S. economy and reassuring earnings released so far, sentiments in U.S. markets bounced back lately overriding worries over the presidential election, uncertainty regarding the timing of the Fed rate cuts and volatility in the oil patch. Decent GDP data from Europe also supported the rally as this quelled the global growth worries a bit (read: Should You Play International ETFs Right Now?).
But note that though the odds of a severe downturn are pretty low at the current level (or nil to tell you the truth), the fact remains that the U.S. economy and market is far from being super-healthy.
Rise of Stock Valuation Despite Uptick in Treasury Yields
Stock valuations have risen even as Treasury yields have increased this year, following an uncertainty regarding the timing of the start of Fed rate cuts. Higher yields tend to affect equity valuations negatively as it means bonds are offering more investment competition to stocks and that future company cash flows are valued less highly.
That means stock valuations could record further uptrend ahead if the Fed delivers its widely expected cuts and yields slump. And while a more optimistic earnings outlook would support the lofty valuation, profit expectations for 2024 have largely remained stable this earnings season as companies have reported results.
Lowered Corporate Earnings Expectations Even for Future Outlook
Despite the strong Q4 results, the outlook for future quarters remains uncertain, lacking positive momentum. Although the earnings picture has improved since the start of 2024, results are still far below what Wall Street had expected just four months ago.
Moreover, both first-quarter and full-year 2024 earnings estimates have declined since January 1st, as many companies have issued cautious guidance during this earnings season, as quoted on CNBC.
IMF Upped Global Growth Forecasts
Meanwhile, the International Monetary Fund (IMF) has upgraded its global growth forecast for 2024. It now anticipates a 3.1% expansion, marking a 0.2 percentage point increase from its previous projection in October. There is an expected 3.2% growth in 2025. Factors contributing to this revised outlook include resilience in the U.S. economy, Chinese fiscal stimulus, and strong performance from large emerging market economies.
So, what sort of stocks should one pick to cash in on the moderately buoyant? In our opinion, it has to be the mid-cap ETF corner. We’ll tell you why.
Wining Argument Behind Mid-Cap Investing
A bet on small-cap stocks is not reasonable as this part of the capitalization spectrum better reflects the domestic economic health. And the U.S. economic growth may be hindered due to prolonged high rates. On the other hand, the U.S. dollar is up 2.5% this year against major currencies. This puts large-cap stocks in jeopardy as mega-cap stocks have considerable exposure in foreign lands and are thus susceptible to adverse currency translation. This theory makes mid-cap ETFs more intriguing as these offer the best of both worlds.
Below we highlight a few mid-cap ETFs that have hit a 52-week high lately.
ETFs in Focus
Alger Mid Cap 40 ETF (FRTY - Free Report) – Up 14.12% YTD
NuShares ESG Midcap Growth ETF (NUMG - Free Report) – Up 4.2% YTD
Argent Mid Cap ETF (AMID - Free Report) – Up 14.2% YTD
Invesco S&P Midcap Quality ETF (XMHQ - Free Report) – Up 8.7% YTD
S&P Midcap 400 Growth ETF (IVOG - Free Report) – Up 4.1% YTD