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S&P 500 Hits New Highs: ETFs & Stocks to Bet On

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After striving for long, the key U.S. equity gauge, the S&P 500, finally hit an all-time high on July 11. The index touched an intraday high of 2,143.16, before closing at 2,137.16, representing a stupendous 220% surge since the market hit the 'bottom in March 2009'.

Not only the S&P 500, the Nasdaq hit this year’s high of 5002.50 before retreating slightly and the Dow Jones industrial average hit a 52-week high. Small-cap index Russell 2000 also added about 1.1% on July 11, down 6.7% from the 52-week high.

What’s Behind the Surge

The rally materialized despite ultra-cautious sentiments prevalent in the marketplace since Britain cut ties with the European Union in late June following a referendum. With the negative consequences of Brexit yet to be felt on the global economy, the sheer uncertainty kept investors edgy.

Record Low Bond Yields: Many investors flocked to government bonds in search of safety, thus pushing yields down. Yields on the benchmark U.S. 10-year Treasury notes slipped to record lows this month before springing 6 bps to 1.43% on July 11.

Such low Treasury bond yields are acting as tailwinds to U.S. stocks. Also, the Fed is expected to remain dovish in the coming months, waiting to watch the Brexit fallout and seeking more stabilization in the U.S. economy. This ensures cheap money inflows in the days ahead, and enthused investors to turn back to risky assets once again.

Bullish Economic Data Points: Meanwhile, the U.S. economy delivered solid job data for the month of June after back-to-back months of weak job growth. In fact, the June job data – following a shockingly downbeat May – was much-eyed and the success of it brought real joy to the market from July 8 (read: ETFs to Buy After Strong Jobs Report).

If this was not enough, manufacturing data for June also came in stronger, giving investors reasons to go risk-friendly while investing (read: ETFs to Play 16-Month High US Manufacturing Data).

Will the July 11 Rally Last?

With the looming earnings recession and fear of companies slashing guidance more in the Q2 season, this rally does not seem to have legs. The Fed already pointed to the overvaluation of U.S. stocks. Even Goldman Sachs believes so. The research house expects as much as a 10% slide in the S&P 500 this year before it returns to the current level of 2,100 by the end of 2016.

Goldman’s 3-month, 6-month, and 12-month S&P 500 price targets are 1,950, 2,100 and 2,150, respectively. Notably, JPMorgan Chase & Co. and Bank of America Corp.  have bearish year-end targets of 2,000 for the S&P 500.

As per a technical expert, “a decisive breakout would require consecutive weekly closes above 2135, and until then we would remain cautious.” All in all, much depends on how the earnings season shapes up, things go on in foreign shores and the pace at which the U.S. economy gains momentum.

Till then, investors who believe that “a trend is your friend” can play this new-found optimism via the below-mentioned stocks and ETFs.

Stock Picks

These stocks have a top Zacks Rank #1 (Strong Buy) and a top Growth and Momentum score of ‘A’, which should position them to cash in on the solid market movement.

OMNOVA Solutions Inc.

Provider of specialty chemicals, and engineered surfaces for various commercial, industrial, and residential end uses in North America, Europe and Asia. The Zacks industry rank of OMN is in the top 38% segment. OMN added over 4.1% on July 11.

B2Gold Corp. BTG

B2Gold Corp. is involved into the exploration and development of mineral properties in Nicaragua, the Philippines, Namibia, Mali, Colombia, Burkina Faso, Finland and Chile. The Zacks industry rank of BTG is in the top 37% segment. BTG was up over 2% on July 11.

Casella Waste Systems Inc. CWST

Based in northeastern U.S., this vertically integrated solid waste services company’s Zacks industry rank is in the top 24%. CWST added over 2.4% on July 11.

ETF Picks

In a trending market, growth ETFs should return nicely, making the below-mentioned choices intriguing.

Calamos Focus Growth ETF (CFGE)

This actively managed fund gives exposure to a U.S. equity portfolio targeted at the large market capitalization level. Google, Apple and Facebook are currently the top three holdings of the fund. However, the product has considerable concentration risk with Google accounting for as much as 6.56%, while the other two account for 5.95% (Apple) and 3.92% (Facebook) of the portfolio. CFGE added over 3% on July 11.

SPDR MFS Systematic Growth Equity ETF SYG

The active fund follows a consistent, disciplined bottom-up stock selection and portfolio construction process to offer long-term risk-adjusted capital gains. Amazon (6.59%), Comcast (4.13%) and Priceline (3.89%) are the top three holdings of the fund. SYG advanced about 2.4% on July 11 (read: 5 Outperforming Active ETFs of 2015).

Victory CEMP US Small Cap Volatility Weighted Index ETF CSA

Small-cap ETFs are definitely worth a look now given the turnaround, albeit slow, of the U.S. economy.

The ETF looks to track the performance of the CEMP US Small Cap 500 Volatility Weighted Index. The index comprises the 500 largest U.S. companies with market capitalization of less than $3 billion. CSA added over 1.6% on July 11.

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