Wall Street To See Best Year Since 2013: Will ETF Rally Last?

We are approaching the end of 2019 and it’s been a superbly rewarding year so far for the Wall Street. The key U.S. indexes, the tech-heavy Nasdaq, the S&P 500 and the small-cap index Russell 2000 have added as much as 32.4%, 27.2% and 22.3% this year, respectively (as of Dec 17, 2019). The S&P 500, in fact, recorded its longest winning streak since November (read: Merry Christmas for Wall Street: Bet on These Momentum ETFs).

With this, the trio is on their way to log the best annual gains since 2013, when the Nasdaq, the S&P 500 and the small-cap index Russell 2000 had rallied a respective 38.3%, 29.6% and 37%. Another key U.S. index Dow Jones trailed a bit with year-to-date returns of 21.1% as the index’s top holding Boeing (NYSE:BA) underperformed in 2019.

Key events of this year that drove the markets were three Fed rate cuts, massive global policy easing in the second half, announcement of the phase-one U.S.-China trade deal after almost two-years of wrangling, talks of a deal on USMCAand the easing of Brexit uncertainty (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).

The renewed launch of the QE measure by the ECB, the Fed’s indication of no rate hikes in 2020 and a preliminary U.S.-Sino trade deal contributed to the broader market rally in the fourth quarter. The technology corner of the broad U.S. stock market has been a clear winner this year despite occasional trade tensions. Other cyclical sectors like financials, consumer discretionary, industrials and communication services also led the market to this high (read: A Look Back At S&P 500 Sector ETFs in 2019).

Against this backdrop, below we highlight a few index-specific ETFs that have been the winners in 2019.

S&P 500

S&P 500-based ETFs likeSPDR S&P 500 ETF Trust ( (ASX:SPY) ), iShares Core S&P 500 ETF (IVV) andVanguard S&P 500 ETF (VOO) were the beneficiaries.Doubel-leveraged S&P 500 ETFs like ProShares Ultra S&P500 (NYSE:SSO) ( (BO:SSO) ) and Direxion Daily S&P 500 Bull 2X Shares (SPUU) returned about 59.3% each. Direxion Daily S&P500 Bull 3X Shares (BS:SPXL) is up about 94.8% this year.

Nasdaq

Nasdaq’s rally aided ETFslikeInvesco QQQ Trust (QQQ), triple-leveraged fund ProShares UltraPro QQQ (TQQQ) (up 122.2%) and double-leveraged fund ProShares Ultra QQQ (QLD) (up 75.6%). In fact, the tech rally has added massive gains to triple-leveraged semiconductor fund Direxion Daily Semiconductor Bull 3x Shares (SOXL) (up 217.1%).

Russell 2000

And finally, the small-cap bounce lent strength to iSharesRussell 2000 ETF IWM. Its double-leveraged versionProShares Ultra Russell2000 (UWM) advanced about 46.8% this year.

Will the Rally Last?

A MarketWatch survey shows that 15 out of 18 Wall Street strategists see upside in the S&P 500 in 2020 from here with Piper Jaffray being the most bullish (12.8% gains) and Deutsche Bank (DE:DBKGn) projecting the least gains (0.3%). Three research houses including Invesco, Morgan Stanley (NYSE:MS) and UBS Group see decline in the S&P 500.

Wall Street bears signaled earnings weakness as the main concern for 2020. “The percentage of S&P 1500 (large-, mid- and small-cap) companies with positive forward EPS growth has deteriorated meaningfully since 2018,” per Morgan Stanley analysts, as quoted on MarketWatch.

Morgan Stanley believes that the liquidity tailwind caused by central bank easing will start to fizzle out and the market will focus more on fundamentals, which are not too sound. Whatever the case, the price appreciation in the S&P 500 is likely to be lower than this year, even in the best-case scenario.

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