Trump Trade Revives: Time For Momentum ETFs & Stocks?

The U.S. stock market has brushed aside all uncertainties regarding overvaluation concerns and North Korea’s nuke-related tensions. Rather, the market is abuzz with talks that the Trump administration is silently proceeding with the tax cut plan (read: Build Your Portfolio With 4 ETFs in Q4).

With several failed attempts to enact health-care reform, hopes may not be too high about the recently proposed tax reforms by the Trump administration. But it is believed the administration will leave no stone unturned to enact at least a leaner version of a tax (cut) reform. Several big investment banks have already come up with expected gains from the tax overhaul proposal.

Goldman expects 2018 earnings for the S&P 500 companies to get a boost of 12% while Bank of America Merrill Lynch (NYSE:BAC) believes that the new rate would benefit earnings by about 11% in 2018. Needless to say, the broader market is bubbling with optimism.

The S&P 500 recorded its sixth consecutive record high close on Oct 5, marking its longest run since 1997, as Congress neared an agreement on a budget resolution. In a routine move-on, the Republican-controlled U.S. House of Representatives okayed a fiscal 2018 spending blueprint to help them facilitate an ensuing tax bill.

The index also posted the first eight days of straight gains since 2013. On the other hand, the Dow Jones Industrial Index is on its way to hit 23,000 for the first time in history, marking its fourth straight 1,000-point ascent over the past 12 months.

Plus, several key economic readings including manufacturing data and auto sales came in upbeat. Also, we can expect a pickup in activity in the coming days as the economy is trying to stand up from hurricanes. The corporate earnings scenario has also been pretty decent in recent times.

How About Momentum Plays?

If the prospect of tax cuts go up further, equity investors can definitely cash in on the trend via momentum investing because stocks will likely shoot up. Momentum investing looks to reflect profits from buying stocks that are sizzling on the market.

ETF Picks

Below we highlight three momentum ETFs that may find a place on investors’ wish list.

iShares MSCI USA Momentum Factor ETF MTUM

This ETF seeks to track the performance of large- and mid-cap U.S. stocks exhibiting relatively higher momentum characteristics. IT and Financials hold the top two positions in the fund (read: High-Momentum and Beta ETFs to Play on Fading Fears?).

SPDR Russell 1000 Momentum (NYSE:ONEO) Focus ETF ONEO

This product targets large-cap securities with a combination of core factors (high value, high quality, and low size characteristics) and a focus factor comprising high momentum characteristics (read: High Beta ETFs & Stocks for Market-Beating Returns).

First Trust Dorsey Wright Focus 5 ETF (V:FV)

The underlying index of the fund, Dorsey Wright Focus Five Index, is designed to provide targeted exposure to the five First Trust sector and industry-based ETFs that DWA believes offer the greatest potential to outperform the other ETFs in the selection universe. First Trust Dow Jones Internet Index Fund (21.58%) and First Trust NASDAQ-100-Technology Sector Index Fund (20.88%) are the two top sectors of the fund.

Stock Picks

Below we highlight three stocks that have a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy), a Momentum Score of A, a Value Score of A or B, and a Growth Score of A or B.

Thor Industries Inc. (NYSE:THO)

The company manufactures a wide range of recreational vehicles (RVs). Its Value and Growth Score is B and A, respectively. The Zacks Industry Rank is in the top 1%. The stock has a Zacks Rank #1.

Werner Enterprises Inc. (NASDAQ:WERN)

This Zacks Rank #2 transportation company has aValue and Growth Score of B and A, respectively. The Zacks Industry Rank is in the top 9%.

Wheeler Real Estate Investment Trust Inc. (NASDAQ:WHLR)

It is into acquiring, financing, developing, leasing, owning and managing income-producing assets, such as neighborhood centers, grocery-anchored centers and community centers. Both the Value and the Growth Score is B. The stock has a Zacks Rank #1.

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