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Can Dow Jones ETFs Soar Even Higher After Hitting 40K Mark?
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Investors are growing optimistic about Wall Street as stocks achieve record highs and the market gears up for an exceptional month of growth. In a remarkable feat, the Dow Jones Industrial Average closed above 40,000 for the first time last week, marking a huge milestone in just 874 trading days since surpassing 30,000.
Analysts express confidence in the market's trajectory, buoyed by positive macroeconomic data and corporate earnings. Projections indicate a continued upward trend, with many strategists raising their year-end targets for the S&P 500.
Given the recent heights achieved by the Dow Jones, it is worth pondering whether this key US equity index can rally further. Below, we highlight a few reasons that could boost the Dow Jones from here.
Upbeat Wall Street Earnings
As of Friday afternoon, the S&P 500 is on track for earnings growth of 5.7%, marking the highest earnings growth rate since Q2 of 2022, according to FactSet, as quoted on Yahoo. Looking ahead, analysts expect year-over-year earnings growth rates of 9.2% for the current quarter, and 11.1% for fiscal 2024.
Symmetric Sectoral Exposure
The Dow Jones has the highest exposure (23.19%) to financial stocks, followed by Information Technology (18.86%), healthcare (18.47%) and Consumer Discretionary (14.69%). Financial stocks are performing good this year. Healthcare stocks are recession-proof. UnitedHealth Group (UNH - Free Report) , a prominent component of the Dow with 8.58% exposure, gained 6.8% past month.
Information Technology giants, in any case, are in great shape this year, owing to the AI craze. Robust earnings growth, particularly outside the tech sector, indicates the market's resilience and broadening rally. Such symmetrical sector exposure will help the Dow Jones withstand varying rate cut expectations.
Steepening Yield Curve in the Cards?
As the inflation has been falling and some economic data points coming in soft, the Fed is likely to cut rates by late 2024. At the current level, according to CME FedWatch tool, there is a 50% chance of a 25-bp rate cut in the Sep 18 meeting, up from 45.8% probability recorded a month ago.
This situation will likely result in a steepening of the yield curve. A steepening yield curve is great for bank stocks as the pattern boosts banks’ net interest rate margins. With the Dow Jones having a solid exposure to financial stocks, the index is likely to gain from the trend.
Amazon & Microsoft to Favor Dow Jones on AI Mania
On Feb 26, 2024, Amazon AMZN has officially joined the Dow Jones. Amazon’s entry to the Dow Jones is very crucial for the blue-chip index’s future outperformance. While Amazon has about 3% exposure, Microsoft has about 6.93% focus. Both companies are striving to enhance their AI innovations and both are cloud majors (read: Time for Cloud ETFs on Earnings Strength & Promising Growth?).
ETFs in Focus
So, investors intending on a momentum play can bet on SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones US ETF (IYY - Free Report) . Investors can also settle on leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.
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Can Dow Jones ETFs Soar Even Higher After Hitting 40K Mark?
Investors are growing optimistic about Wall Street as stocks achieve record highs and the market gears up for an exceptional month of growth. In a remarkable feat, the Dow Jones Industrial Average closed above 40,000 for the first time last week, marking a huge milestone in just 874 trading days since surpassing 30,000.
Goldman Sachs (GS - Free Report) , Microsoft (MSFT - Free Report) , and UnitedHealth (UNH - Free Report) played pivotal roles in propelling the Dow from 30,000 to 40,000, reflecting a diverse composition within the index (read: 5 Stocks Powering the Dow ETF Year to Date).
Market Outlook and Potential
Analysts express confidence in the market's trajectory, buoyed by positive macroeconomic data and corporate earnings. Projections indicate a continued upward trend, with many strategists raising their year-end targets for the S&P 500.
Deutsche Bank just boosted the S&P 500 target on strong earnings from 5,100 to 5,500. BMO Capital Markets chief investment strategist Brian Belski boosted the target to 5,600, as quoted on Yahoo. Despite potential corrections, optimism prevails, particularly post-election and amid strong earnings performance.
Can Dow Jones Continue to Soar?
Given the recent heights achieved by the Dow Jones, it is worth pondering whether this key US equity index can rally further. Below, we highlight a few reasons that could boost the Dow Jones from here.
Upbeat Wall Street Earnings
As of Friday afternoon, the S&P 500 is on track for earnings growth of 5.7%, marking the highest earnings growth rate since Q2 of 2022, according to FactSet, as quoted on Yahoo. Looking ahead, analysts expect year-over-year earnings growth rates of 9.2% for the current quarter, and 11.1% for fiscal 2024.
Symmetric Sectoral Exposure
The Dow Jones has the highest exposure (23.19%) to financial stocks, followed by Information Technology (18.86%), healthcare (18.47%) and Consumer Discretionary (14.69%). Financial stocks are performing good this year. Healthcare stocks are recession-proof. UnitedHealth Group (UNH - Free Report) , a prominent component of the Dow with 8.58% exposure, gained 6.8% past month.
Information Technology giants, in any case, are in great shape this year, owing to the AI craze. Robust earnings growth, particularly outside the tech sector, indicates the market's resilience and broadening rally. Such symmetrical sector exposure will help the Dow Jones withstand varying rate cut expectations.
Steepening Yield Curve in the Cards?
As the inflation has been falling and some economic data points coming in soft, the Fed is likely to cut rates by late 2024. At the current level, according to CME FedWatch tool, there is a 50% chance of a 25-bp rate cut in the Sep 18 meeting, up from 45.8% probability recorded a month ago.
This situation will likely result in a steepening of the yield curve. A steepening yield curve is great for bank stocks as the pattern boosts banks’ net interest rate margins. With the Dow Jones having a solid exposure to financial stocks, the index is likely to gain from the trend.
Amazon & Microsoft to Favor Dow Jones on AI Mania
On Feb 26, 2024, Amazon AMZN has officially joined the Dow Jones. Amazon’s entry to the Dow Jones is very crucial for the blue-chip index’s future outperformance. While Amazon has about 3% exposure, Microsoft has about 6.93% focus. Both companies are striving to enhance their AI innovations and both are cloud majors (read: Time for Cloud ETFs on Earnings Strength & Promising Growth?).
ETFs in Focus
So, investors intending on a momentum play can bet on SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones US ETF (IYY - Free Report) . Investors can also settle on leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.