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Trump Drives Dow to Record High: ETFs in Focus

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The Dow Jones Industrial Average closed at a new all-time high on Thursday on hopes of expansive government spending, lesser financial regulation, and increased prospects of tax cuts that would boost economic growth under a Trump presidency.

Notably, the blue chip index is up 5.1% so far this week, marking the biggest four-day percentage gain since August 2015 and is now within the striking distance of 19,000. This has outplayed the majority of Wall Street analysts who had expected a big sell-off in U.S. stocks following Trump’s election.

The gains were not broad based with three sectors – financials, industrials and health-care – actually leading the way higher. In particular, the financial sector climbed 7.9% post Trump victory, representing the biggest two-day gain since 2011 as the Republican candidate seeks to dismantle the Dodd-Frank Act largely opposed by banks (read: Sector ETFs Hitting 52-Week High on Trump's Victory).

Trump Economic Course of Action

Trump in his victory speech said that he seeks to double the pace of economic growth from the current 2%, create 25 million jobs over 10 years, and make the U.S. economy the strongest in the world. Apart from boosting U.S. military spending, he promised to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure by pouring billions of government dollars into highway, bridges, hospital and other construction projects. The investment in infrastructure could create millions of relatively high-paying jobs.

Further, during his campaign, Trump vowed to cut U.S. corporate tax rates to 15% from 35%, which will likely increase the attractiveness of the U.S. as a business destination. This in turn would create substantial economic growth even though its anti-trade policies could shave off 0.5% in GDP growth in the months ahead. The Republican candidate also vowed to cut taxes for all Americans reducing the top tax bracket from 39.6% to 33%. This move could bolster consumer spending, fueling growth in the economy.

While most analysts feared that Trump's spending stimulus and tax cuts could increase the federal debt over the long term, the elected president expects the steep tax cuts to be offset by significantly stronger economic growth (read: ETFs & Stocks That Topped or Flopped After Trump Won).

Given the expectation of the right dosage of taxes and growth, the Trump presidency can lead to soaring stock markets with the Dow continuing to climb in the months ahead. Investors seeking to participate in the Trump-driven rally could find the following ETFs exiting choices.

SPDR Dow Jones Industrial Average ETF (DIA - Free Report)

The ETF tracks the performance of the Dow Jones Industrial Average. It holds 31 stocks in its basket with each security holding less than 7.1% share. The fund is widely spread across sectors with industrials, information technology and financials being the top three. DIA is one of the largest and most popular ETFs in the large-cap space with AUM of over $11.7 billion and average daily volume of 3.3 million shares. It charges 17 bps in fees per year from investors and hit an all-time high of $188.82 in yesterday’s trading session. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.

ProShares Ultra Dow30 ETF (DDM - Free Report)

This ETF is a leveraged play that provides twice (2x or 200%) the return of the Dow Jones Industrial Average. It has AUM of $235.6 million and trades in good volume of more than 189,000 shares on average. The product charges 95 bps in annual fees and reached an all-time high of $75.90, representing a gain of 5.3% post Trump’s victory (read: Trump Triumphs: Stocks & ETFs to Rock or Shock).

ProShares UltraPro Dow30 (UDOW - Free Report)

This product also tracks the Dow Jones Industrial Average but offers three times (3x or 300%) exposure to the index. It has amassed $101.8 million in its asset base and trades in a solid average daily volume of over 317,000 shares. Expense ratio came in at 0.95%. The ETF rose 7.7% over the past two sessions, hitting a record high of $81.92.  

Investors should note that though DDM and UDOW could lead to huge gains in a very short time frame when compared to traditional funds, these run the risk of huge losses in a fluctuating or erratic market.

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