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ETFs to Watch as Nasdaq Hits All-Time High

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Better-than-expected jobs data and aggressive economic stimulus measures opted by major central banks led Nasdaq to a record high on Friday. After suffering heavily in the first half of 2016, the tech-heavy index has rebounded strongly in recent times on the back of robust gains in tech and biotech stocks.

The Nasdaq rose 1.1% in last week’s final session to end at a record high of 5,221.12, outpacing its earlier high of 5218.86 attained on Jul 20, 2015. Also, Fidelity Nasdaq Composite TR Stk ETF ONEQ that seeks to track the performance of the NASDAQ Composite Index gained 7.4% and 10.3% over the past one-month and three-month periods, respectively.

Encouraging Jobs Data

According to the Bureau of Labor Statistics (BLS), the economy added 255,000 jobs in July, following an upwardly revised reading of 292,000 job additions for the month of June.It outpaced the consensus estimate of 180,000. Also, an additional 18,000 jobs were added in May and June, than had been earlier estimated.

Moreover, in July, wages rose by 0.3% while increasing 2.6% on a yearly basis. The average workweek also rose by 0.1 hours to 34.5 hours last month. This is the largest increase since the month of January. However, the reading for unemployment rate came in marginally above the estimated 4.8%, remaining flat at 4.9%.

Aggressive Stimulus Measures

Separately, the Bank of England (BOE) cut interest rates by 25 basis points to a rock-bottom 0.25% for the first time in more than seven years. The move was highly expected after Britons opted to leave the Europe Union in the June 23 referendum. Moreover, BOE Governor Mark Carney announced that the central bank’s government bond purchases program has been raised by GBP 60 billion (about $78.71 billion), pushing the nation’s total to GBP 435 billion (or about $579 billion) (read: BoECuts Rates: ETF & Stock Gainers).

Moreover, Japan's Prime Minister Shinzo Abe unveiled fresh stimulus measures to boost the country's flagging economy last month. Abe said that fiscal stimulus measures amounting to 13 trillion yen or $265 billion will be implemented to support Japan's economy. The government intends to raise the country's minimum wage by 3% to encourage higher consumer expenditure (read: Can Japan ETFs Soar Without Helicopter Money?).

Encouraging Tech Earnings

Encouraging earnings results from tech giants played a major role in boosting the Nasdaq in recent weeks. As of Aug 5, total earnings for S&P 500 tech companies are down 0.8% from the same period last year although revenues climbed 2.4% higher. The sector came off favorably when compared with total earnings and revenue results of S&P 500 companies as a whole. Total earnings for 433 companies that reported second-quarter results till Aug 5 are down 4.1% from the same period last year on 0.9% lower revenues.

Tech companies also pulled off a sequentially better performance. Total first quarter-earnings of these companies reported a year-on-year decline of 6% on 0.1% lower revenues. The sector is expected to witness second-quarter earnings growth of 0.2% on 2.7% higher revenues.

Encouraging earnings results of tech mammoths including Facebook FB, Alphabet GOOGL, Apple AAPL and Microsoft (MSFT - Free Report) boosted investor sentiment lately. Meanwhile, AMZN emerged as one of the biggest gainers among the Nasdaq components in the recent past on the back of its better-than-expected earnings results (read: ETFs to Gain as Amazon Crushes Q2 Estimates).

The Nasdaq-100 index, which excludes financial companies and is heavily concentrated in tech stocks, jumped 7.8% over the past one-month period. PowerShares QQQ ETF QQQ, which tracks the index and has major tech companies in its top 10 holdings, also gained 7.8% and 10.6%, over the past one month and three-month periods, respectively. This popular ETF has amassed nearly $39 billion in its assets base and trades in solid volume of 27 million shares a day.

Biotech Rebound

A strong rebound in biotech stocks in recent weeks also had a positive impact on Nasdaq’s performance. The iShares Nasdaq Biotechnology IBB, which lost nearly 24% in the first half of 2016, gained 11.7% over the past one month and 2.5% last week. Encouraging second-quarter biotech earnings emerged as one of the key reasons behind IBB’s rebound. Major players from the sector including Biogen Inc. BIIB and Amgen AMGN came out with better-than-expected second-quarter earnings results. Though Gilead Sciences GILD missed on revenues, it managed to beat on earnings (read: Pharma ETFs Soaring on Solid Q2 Earnings). 

The Medical sector, which is the broader sector of biotech stocks, is expected to record earnings growth of 4.4% on 7.7% higher revenues in the second quarter. The total S&P 500 earnings are expected to be down 3.5% on 0.4% lower revenues, with growth in negative territory for 6 of the 16 Zacks sectors. As of Aug 5, total earnings for S&P 500 medical sector companies are up 6.5% from the same period last year on 9.9% higher revenues.

What’s Ahead?

The Nasdaq is likely to sustain the uptrend in the coming days as technology and biotech sectors are speculated to finish the second-quarter earnings season on a positive note. Against this backdrop, ETFs that seek to track the performances of the Nasdaq and that of tech and biotech stocks listed on the index are poised to remain on investors’ radar in the days ahead.

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