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ETF Strategies to Gain From US Market Optimism

Published 11/16/2020, 03:46 AM
Updated 07/09/2023, 06:31 AM

The mood in Wall Street is upbeat as the S&P 500 has risen 2.2% in the week ending Nov 13. The 30-stock Dow Jones Industrial Average has also rallied more than 4% in the week, hitting an intra-day record (according to a CNBC article).

The recent coronavirus antibody and vaccine development raises hopes of a vaccine soon. On Nov 9, Pfizer (NYSE:PFE) and BioNTech announced the efficacy of their mRNA-based coronavirus vaccine candidate, BNT162b2. According to the companies, the vaccine was more than 90% successful in preventing COVID-19 in participants without prior evidence of SARS-CoV-2 infection. The results are based on the first interim efficacy analysis conducted on Nov 8, by an external, independent Data Monitoring Committee from the Phase 3 clinical study, per the company. The news has instilled optimism in the market.

Meanwhile, total number of coronavirus cases has crossed 54 million globally. Notably, the world’s largest economy has seen more than 11 million cases alone. Thus, the worsening coronavirus crisis is raising desperation among investors over the introduction of a vaccine.

On the other hand, Eli Lilly and Company (NYSE:LLY) recently announced that its investigational neutralizing antibody bamlanivimab (LY-CoV555) 700 mg has been awarded Emergency Use Authorization (EUA) by the FDA.

Moreover, the chances of a divided Congress in the United States seem more likely, where Republicans can continue to control the Senate and Democrats, the House. Thus, as a result of this political gridlock, major and stringent changes in the corporate tax policies will be very difficult to implement in the medium-term. Thus, easing worries regarding major policy changes are making the investing environment more friendly for market participants.

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Going on, the United States is pleasantly surprising market participants with upbeat economic data. Notably, the world’s largest economy delivered an impressive performance in third-quarter 2020, beating market expectations. Going by, the Department of Commerce’s report on Oct 29, GDP surged to a record high at an annualized pace of 33.1% after declining 31.4% in the second quarter.

The manufacturing sector is also picking up despite the coronavirus crisis. According to the Institute for Supply Management (ISM) report on Nov 2, its Purchasing Managers' Index (PMI) for manufacturing surged to 59.3% in October, increasing 3.4 points from last month and surpassing the consensus estimate of 55.9%. In fact, the October figure stood out as the highest PMI reading since September 2018.

Furthermore, the housing market continues to be a bright spot in the U.S. economy as it recently delivered a streak of encouraging data. The recently-released data on the U.S. builder confidence was impressive as well. Per the monthly NAHB/Wells Fargo Housing Market Index (HMI), builder confidence for newly-built single-family homes rose to an all-time high of 85 points in October in comparison to 83 points in September, 78 in August and 72 in July. Low interest rates are boosting demand in the housing market and resulting in a rise in mortgage applications.

ETF Strategies to Follow

Here we discus certain ETF strategies to help investors make the most of the upbeat U.S. economic data amid the coronavirus crisis:

Momentum ETFs to Consider

While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and positive developments in coronavirus vaccine research, momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF MTUM, Invesco DWA Momentum ETF PDP, Invesco S&P MidCap Momentum ETF (XMMO), VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum (NYSE:ONEO) Focus ETF (ONEO) (read: Here's Why it is the Right Time to Invest in Momentum ETFs).

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Growth ETFs to Play

Growth stocks are generally expected to witness a positive revenue and earnings trend at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are several options in the growth ETF world, we have highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF VUG, Schwab U.S. Large-Cap Growth ETF SCHG, iShares Core S&P U.S. Growth ETF IUSG, SPDR S&P 500 Growth ETF (NYSE:SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: Here's Why Growth ETFs Are Sizzling With Opportunities).

Large-Cap ETFs to Look Out For

With the U.S. economy gradually looking up, it makes sense to bet on large-cap ETFs as these funds perform well in such scenarios. Therefore, investors can consider SPDR S&P 500 ETF Trust (ASX:SPY) SPY, iShares Core S&P 500 ETF IVV, Vanguard S&P 500 ETF VOO, Schwab U.S. Large-Cap ETF SCHX, iShares Russell Top 200 ETF (IWL), Vanguard Mega Cap ETF (MGC) and Multifactor Large Cap ETF (JHML) (read: ETFs Riding the Latest Coronavirus Vaccine Optimism Wave).

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SPDR S&P 500 ETF (NYSE:SPY): ETF Research Reports

iShares Core S&P 500 ETF (IVV): ETF Research Reports

Vanguard S&P 500 ETF (VOO): ETF Research Reports

iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports

Vanguard Growth ETF (VUG): ETF Research Reports

Invesco DWA Momentum ETF (PDP): ETF Research Reports

iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports

Schwab U.S. LargeCap Growth ETF (SCHG): ETF Research Reports

Schwab U.S. LargeCap ETF (SCHX): ETF Research Reports

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