The market optimism clearly shows on the Wall Street rally. On Aug 24, S&P 500 and Nasdaq Composite indices again touched an all-time high. On the same day, the S&P 500 closed above 3,400 for the first time. In fact, Dow Jones Industrial Average rallied 1.4% to close at 28,308.46 followed by the S&P 500’s rise of 1% to 3,431.28 and Nasdaq Composite’s 0.6% increase to 11,379.72 in the same trading session.
New coronavirus cases in the United States seem to be slowing down, which is filling investors with new enthusiasm. Also, Trump’s new move on coronavirus vaccine seems progressive. In such a scenario, we expect growth stocks to perform well on the encouraging factors discussed below:
Coronavirus Vaccine Progress
Per a Financial Times report, the Trump administration is planning to fast-track a potential coronavirus vaccine candidate that is being developed in the U.K. for use in the United States before the nation’s upcoming presidential election, according to a CNBC article.
Also, the U.S. government has signed a $1.5-billion coronavirus vaccine supply agreement with Moderna (NASDAQ:MRNA). The agreement with Moderna also includes incentive payments for timely delivery of the product. It also states that the U.S. government has an option to purchase up to an additional 400 million doses of the potential coronavirus vaccine from Moderna. The U.S. government has been entering into such deals under its Operation Warp Speed program to purchase hundreds of millions of doses of potential coronavirus vaccines from several companies, according to The Economic Times article.
Favorable updates on two vaccine candidates being developed by Moderna (MRNA) and Pfizer (NYSE:PFE), in collaboration with German biotech firm BioNTech, have also come to the fore. These companies have begun the late-stage study on their coronavirus vaccines. Other vaccine developers that are being supported by the Operation Warp Speed are also nearing the late-stage trials.
Slew of Encouraging U.S. Economic Data
The improving manufacturing numbers have instilled optimism among investors. According to data firm IHS Markit, its flash composite purchasing managers index that measures both manufacturing and service activities, jumped to 54.7 in August from 50.3 in July, and registered an 18-month high, per a Reuters' article.
The housing sector seems to be a bright spot in the U.S. economy amid the coronavirus crisis as the sales of existing homes in July witnessed the strongest monthly rise in the survey’s history since 1968. The recently-released data on the U.S. builder confidence was upbeat as well. Another round of upbeat data from the U.S. housing market signals that the sector is gaining the momentum back.
Impressive Q2 Earnings
Notably, the S&P 500 index rally is largely reflective of investor optimism and improving U.S. economic fundamentals. Overall, the second-quarter earnings season has impressed investors as companies could fight the pandemic and deliver better results than feared by market participants. Also, estimates for the current period (third-quarter 2020) and beyond have been observed to increase steadily, though they still suggest significant declines from the year-ago periods.
Fed’s Support
The U.S. economy has started to reopen in phases and there is massive Fed and government stimulus to combat the crisis which can help the economy rebound. The Federal Reserve officials currently hold the overnight borrowing rate in a range of 0-0.25% after the Jul 28-29 meeting.
ETFs to Ride the Tide
Given the bullishness, investors seeking to capitalize on the strong trends should consider growth ETFs. However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks. Below we highlight a few growth ETFs that could be added to the portfolio.
Invesco Dynamic Large Cap Growth ETF PWB
The fund is based on the Dynamic Large Cap Growth Intellidex Index. It charges an expense ratio of 55 basis points (bps) and sports a Zacks Rank #2 (Buy) (read: Buy Growth ETFs on Endless Fed Support).
Vanguard Mega Cap Growth ETF MGK
The fund seeks to track the performance of a benchmark index that measures the investment return of the largest-capitalization growth stocks in the United States. It charges an expense ratio of 7 bps and sports a Zacks Rank #1 (Strong Buy) (read: S&P 500 Hits New Record Highs: Top-Ranked ETF Winners).
SPDR Portfolio S&P 500 Growth ETF SPYG
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P 500 Growth Index. It charges an expense ratio of 4 bps and sports a Zacks Rank #1 (read: ETFs to Win on S&P's Upside Potential on Way to Record Close).
iShares S&P 500 Growth ETF IVW
It seeks to track the investment results of an index composed of large-capitalization U.S. equities that exhibit growth characteristics. The fund charges an expense ratio of 18 bps and sports a Zacks Rank #1.
Vanguard S&P 500 Growth ETF VOOG
The fund seeks to track the performance of the S&P 500 Growth Index. It charges an expense ratio of 10 bps and sports a Zacks Rank #1 (read: Growth ETFs to Soar Higher: Thanks to Fed & Government).
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Invesco Dynamic Large Cap Growth ETF (PWB): ETF Research Reports
iShares SP 500 Growth ETF (IVW): ETF Research Reports
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
SPDR Portfolio SP 500 Growth ETF (SPYG): ETF Research Reports
Vanguard SP 500 Growth ETF (VOOG): ETF Research Reports
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