The Dow Jones industrial average is up 12.4% this year (as of Apr 3, 2019), thanks to a dovish Fed and cues of improvement in U.S.-China trade relation. However, the index has still underperformed its other two cousins – the S&P 500 (up 14.6%) and the Nasdaq (up 19%) (read: Dogs of the Dow Win in 2018: Will ETFs See Success in 2019?).
However, as the second quarter of 2019 began, fundamentals look stronger for the Dow Jones. Investors should note that SPDR Dow Jones Industrial Average ETF (DIA - Free Report) is still off 2.8% from its 52-week high, entailing more room for growth in the coming days. The fund also has a Zacks Rank #1 (Strong Buy).
Let’s take a look at the factors that can drive a Q2 rally for Dow Jones ETFs.
U.S.-China Trade Optimism
The Dow Jones is about to gain from the trade optimism as the U.S.-China trade talks are highly related to the manufacturing sector and exports. In late February, President Donald Trump postponed the increase of tariffs on about $200 billion worth of Chinese goods, citing “substantial progress” in trade talks with Beijing. The increment was earlier scheduled to take place from Mar 1 (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).
Most recently, the Financial Times reported that top U.S. and Chinese officials have resolved most of the issues pertaining to trade conflicts but are still negotiating on how to enact the agreement as quoted on Reuters. U.S. President Donald Trump's also commented that trade talks with China were going very well.
Uptick in Manufacturing Activity
Manufacturing numbers point to a recovery in the United States. An uptick in manufacturing numbers can act as a strong tailwind to Dow Jones Industrial Average’s forward growth, in our opinion.
The Institute for Supply Management’s Manufacturing PMI in the United States increased to 55.3 in March from February’s 54.2. The reading also surpassed market expectations of 54.5.
Growth in new orders (57.4 from 55.5 in February), production (55.8 from 54.8), employment (57.5 from 52.3) and prices (54.3 from 49.4) pulled off this beat. Investors should note that any reading of 50 or higher indicates growth.
Manufacturing numbers have been volatile in recent months. The March rebound thus came as a relief. Of the 18 manufacturing industries, 16 registered growth last month (read: U.S. Manufacturing Sector Grows in March: ETF & Stock Picks).
Boeing’s Expected Price Gains
Boeing takes 10% of the fund DIA. So, the company’s performance matters a lot. Its stock is down 11% in the past month (as of Apr 3, 2019) due to the Mar 10 Ethiopian Airlines crash. But shares are still up 19.3% year to date.
The Zacks Consensus Estimate for first quarter and fiscal 2019 earnings remains unchanged though the estimate for the second quarter was cut 11 bps to 4.71%. The stock has a Zacks Rank #1 and comes from a top-ranked Zacks industry (top 26%).
Furthermore, it has been noticed lately that Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally has spread optimism in the broader market as a whole, in most cases, on a particular day of oil surge, the spurt in the Dow Jones is steeper than that of the S&P 500, or vice versa (read: Oil Jumps: 4 ETFs to Benefit & 4 to Suffer).
Oil prices made a comeback recently, buoyed by the fresh output cut decision by OPEC and Russia for the first six month of 2019, U.S. sanctions against Venezuela on political ground and U.S.-Sino trade deal hopes.
United States Oil Fund LP (USO - Free Report) added about 34.5% while United States Brent Oil Fund LP (BNO - Free Report) has advanced about 28.8% this year (as of Apr 3, 2019).
ETFs in Focus
Still, investors intending a momentum play, can bet on DIA, Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) and iShares Dow Jones US ETF (IYY - Free Report) . Investors can also settle for 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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>