ETF Strategies To Play The Wall Street Rally

The major US indices have been recently scaling new highs after taking a hit from the coronavirus eruption. The S&P 500 Index set a fresh record at the closing bell on Feb 5, followed by Dow Jones Industrial Average that gained more than 500 points intraday. Moreover, the Nasdaq Composite Index reached another all-time high on Feb 4. Before discussing the ETF strategies to gain from the current momentum in the U.S. financial markets, let’s analyze the factors that are driving the momentum:

China’s Stimulus Measures

China’s central bank injected 1.7 trillion yuan or $242.74 billion via reverse repos on Feb 3 and Feb 4 to instill investor confidence. The introduction of fresh stimuli aided China’s stocks to recover from the lowest level in more than four years. Notably, China emerged as an integral constituent of the global supply chain. Therefore, any slowdown in the country’s economy will leave an impact on the global financial markets (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

Better Sino-US Trade Bond

Beijing recently announced its plans to reduce additional tariffs imposed on 1,717 U.S. goods in 2019 to half. However, the national finance ministry didn’t specify the valuation of the goods to fall under its revised tariffs. Meanwhile, it is believed that the 5-10% tariffs imposed on $75 billion worth of goods on Sep 1, 2019 will be adjusted to 2.5-5% tariffs. The updated tariffs will be applicable on Feb 14. This move will also lead to a reduction in tariffs on soybeans and crude oil.

Encouraging Economic Data

The release reports with impressive data reflect a thriving domestic economy. The ISM Manufacturing PMI in the United States rose to a reading of 50.9 in January, marking the highest level since July, from an upwardly revised 47.8 in December. The data came ahead of economists’ poll of 48.5 for January. A reading above 50 indicates expansion in the manufacturing sector, accounting for about 11% of the U.S. economy. The latest reading also registers the first-month growth in the manufacturing sector after five straight months of contraction. Moreover, ISM non-manufacturing and U.S. services PMI surpassed expectations. Strong private payroll report from ADP (NASDAQ:ADP) also boosted the market sentiments (read: U.S. Manufacturing Back to Health: ETF Winners & Losers).

ETF Strategies to Follow

Here we discus certain ETF strategies to help investors make the most of the current bull market.

Momentum ETFs

While the broader stock market is expected to gain traction on the positive developments in US-China trade relationship, momentum investing will likely take center stage 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 (NYSE:UL) and SPDR Russell 1000 Momentum (NYSE:ONEO) Focus ETF ONEO (read: Play These ETFs on Visa-Plaid Deal).

Growth ETFs

Growth stocks are likely 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 plenty of options in the growth ETF world, we highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF (BE:VUG) , Schwab U.S. Large-Cap Growth ETF (KL:SCHG) , iShares Core S&P U.S. Growth ETF IUSG, SPDR S&P 500 Growth (NYSE:SPYG) ETF SPYG and Vanguard Mega Cap Growth ETF MGK (read: Why You Should Buy Growth ETFs Now).

Large-Cap ETFs

The current investment scenario marked by a buoyant U.S. economy and strengthening of trade relationships seems just perfect to bet on the large-cap ETFs as these funds perform well in such scenarios. Therefore, investors can consider SPDR S&P 500 ETF Trust (ASX: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 (ASX:MGC) ), Vanguard Mega Cap Growth ETF (MGK) and Multifactor Large Cap ETF JHML (read: Is the Nightmare Over for Coronavirus-Infected Energy ETFs?).

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 >>